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A reenlistment bonus if the voluntary Definition of Combat Zone
Summary of Combat Zone extension or reenlistment occurs in a A combat zone is any area the President of the
Tax Benefits month you served in a combat zone. United States designates by Executive Order as
Pay for accrued leave earned in any an area in which the U.S. Armed Forces are
month you served in a combat zone. The engaging or have engaged in combat. Certain
DoD must determine that the unused areas in the Balkans region have been declared
leave was earned during that period. by Congress in a Public Law as “Qualified
Pay received for duties as a member of Hazardous Duty Areas” or QHDAs, which
the Armed Forces in clubs, messes, post have the same tax benefits as combat zones.
and station theaters, and other non-
appropriated fund activities. The pay Designated Combat Zones
must be earned in a month you served in Afghanistan, the Persian Gulf area (including
a combat zone. Iraq, Kuwait, Saudi Arabia, Oman, Bahrain,
Awards for suggestions, inventions, or Qatar, UAE, as well as the Persian Gulf, Gulfs
If you are a member of the U.S. Armed Forces
scientific achievements you are entitled of Aden and Oman, Red Sea, and parts of the
who serves in a combat zone (defined below),
you can exclude certain pay from your income to because of a submission you made in Arabian Sea) , and certain areas in the Balkans
when determining your taxes as well as a month you served in a combat zone. region are currently designated as CZs or
postpone certain tax related actions during and Student loan repayments that are QHDAs. Specific locations are listed in
following your service in the combat zone. The attributable to your period of service in a Publication 3.
following is a summary of combat zone tax combat zone (provided a full year's
exclusions (CZTE). IRS Publication 3, Armed service is performed to earn the
repayment). Serving in a Combat Zone
Forces’ Tax Guide, can provide additional Service in a combat zone includes any
information. These rules DO NOT apply to periods you are absent from duty
DoD or non-DoD civilian personnel, nor for One Day = One Month Rule. If you serve in a
because of sickness, wounds, leave, or
members of the Merchant Marine, Public combat zone for one or more days in any
TAD/TDY, unless leave, TAD/TDY
Health Service or other uniformed services. month, you are entitled to an exclusion for that
includes the full calendar month.
Coast Guard members do qualify. entire month.
If, as a result of serving in a combat
zone, a person becomes a prisoner of
What Can be Excluded W-2’s. DFAS is charged with accounting for war or is missing in action, that person is
Enlisted personnel, warrant officers, and CZTE amounts and reports them to you on considered to be serving in the combat
commissioned warrant officers can exclude all your W-2. The wages shown in box 1 of your zone so long as he or she keeps that
normally taxable pays from their income during Form W-2 should not include military pay status for military pay purposes.
months of service in a combat zone. excluded from your income under the combat You are considered to be serving in a
zone exclusion provisions. If it does, you will combat zone if you are either assigned
Commissioned officers can exclude the amount need to get a corrected Form W-2 from your on official temporary duty to a combat
of $6867.60 per month of normally taxable finance office. CZTE amounts are shown on zone or you qualify for hostile
pays. This amount is the highest enlisted pay your W-2 in box 12 as a “Q” amount. You fire/imminent danger pay while in a
grade (MCPON’s pay for Navy) plus the $225 cannot exclude as combat pay any wages combat zone.
imminent danger or hostile fire pay. Note that shown in box 1 of Form W-2. The IRS does not There are special rules for
tax-free allowances (BAH/BAS, etc.) continue permit “pen and ink” changes to W-2’s! But hospitalization related to CZ injuries.
to be tax-free for all military personnel and do you can file a return with the erroneous W-2 to See Publication 3.
not factor into the officer pay cap exclusion. get your refund, and then file an amended
Excludable income includes: return later when you get a corrected W-2.
Active duty pay earned in any month
you served in a combat zone
Imminent danger/hostile fire pay
Non-Qualifying Presence in Combat The duration of this extension can be a bit Earned Income Tax Credit
Zone complicated to calculate but put simply it is: Qualification.
The following military service does not qualify 1. The duration of your service in the Servicemembers who may qualify for the EITC
as service in a combat zone: combat zone (or while hospitalized due to except for the fact that they have little or no
Presence in a combat zone while on injuries received in the combat zone); plus earned income due to the CZ income exclusion,
leave from a duty station located outside 2. 180 days after you leave the combat can now make an election on their tax return to
the combat zone, zone; plus consider otherwise excluded pay as taxable
Passage over or through a combat zone 3. The number of days that you had to solely for EITC purposes. The W-2 box 12, Q
during a trip between 2 points that are take the action (e.g., file the return) when you amount is used instead of box 1, gross income.
outside a combat zone, and entered the combat zone. This election does not increase taxes owed and
Presence in a combat zone solely for If for example, you entered the will almost always mean a larger refund.
your personal convenience. combat zone on April 1st, your tax return was
due on April 15th. But you can add to your time Special Rules for IRAs, TSP
in 1. and 2. above the 15 days that you had left
Qualifying Service Outside Combat Contributions, and Reserve Personnel.
to file the return on time. If you entered the
Zone [“In Direct Support”] combat zone on December 25th, you can add
Publication 3 has very helpful information on
Military service outside a combat zone is combat zone tax benefits related to these topics
105 days (1 January to 15 April) to the other and should be consulted early and often.
considered to be performed in a combat zone if: extension times.
The service is in direct support of Reserve personnel receiving compensation
military operations in the combat zone, from their civilian employer (“differential
Publication 3 and the IRS web site have other
and pay”) in particular need to consult Pub 3 to
examples.
The service qualifies you for special ensure they understand their tax liability.
military pay for duty subject to hostile Note: Just because you can extend the filing
fire or imminent danger. Questions regarding combat zone tax benefits
of your tax return does not make it a good
can be addressed to your local military tax
idea! If you are due a refund, Uncle Sam will
“In Direct Support” designation is made by center, your Unit Tax Advisor, or a JAG legal
pay you a modest interest rate on returns filed
assistance attorney. The IRS web page at
DoD and military pay received for this service under these provisions, but wouldn’t you
will qualify for the combat zone exclusion if www.IRS.gov also has a wealth of information
rather have the money now? File when you
the designation is made and only if you receive for military taxpayers including a very useful
are able to, rather than waiting until years
IDP or HFP. Q&A section that may address your particular
later. It will make things much simpler!
issue.
______________________________________ Signing of Returns.
The non-military spouse can file a joint return
without the necessity of the service member’s
Other Combat Zone Tax signature. This can be done by use of an IRS
Benefits power of attorney (Form 2848), a military
Filing and Payment of Taxes Extension. power of attorney that authorizes tax actions, or
The deadline for filing tax returns, paying by simply submitting a signed statement
taxes, filing claims for refund, and taking other indicating that the spouse is currently serving in
Information contained herein is valid for the 2007
actions with the IRS is automatically extended a combat zone. These returns can be e-filed, but tax year. This brochure was prepared by:
if you are serving in a combat zone/QHDA or the tax preparer will need to attach the power of Office of the Navy Judge Advocate General,
are considered “in direct support.” These rules attorney or signed statement to a Form 8453 Legal Assistance Division (Code 16)
apply to your stateside spouse as well, if you and send it to IRS. 1322 Patterson Avenue, Suite 3000,
will be filing a joint return. Washington Navy Yard, DC 20374-5066
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