Important Information on Military Taxes


>Military Taxes: Combat Zone Exclusion
>If you are an enlisted member, warrant officer or commissioned warrant officer, and you serve in a combat zone (defined below), during any part of a month, all of your military pay for that month is excluded from your taxable income. You can also exclude military pay earned while you are hospitalized as a result of wounds, disease, or injury incurred in the combat zone. The exclusion of your military pay while you are hospitalized no longer applies to any month that begins more than two years after the end of combat activities in that combat zone. You do not need to be hospitalized in a combat zone to exclude pay earned during that period. If you are a commissioned officer (other than a warrant officer), you can claim a tax exclusion according to the rules just discussed. However, the amount of your exclusion is limited to the highest rate of enlisted pay available (e.g., an E-9 with maximum time in service), plus imminent danger or hostile fire pay you received for each month in which you served in a combat zone, or were hospitalized as a result of your service there.

>Combat zone tax exclusions include: Active duty pay earned in any month you served in a combat zoneImminent danger or hostile fire payA reenlistment bonus if the voluntary extension or reenlistment occurs in a month you served in a combat zonePay for accrued leave earned in any month you served in a combat zone.

>The Department of Defense (DoD) must determine that the unused leave was earned during that period. Pay received for duties as a member of the Armed Forces in clubs, messes, post and station theaters, and other non-appropriated fund activities. The pay must be earned in a month you served in a combat zone. Awards for suggestions, inventions, or scientific achievements you are entitled to because of a submission you made in a month you served in a combat zone. Student loan repayments that are attributable to your period of service in a combat zone (provided a full year's service is performed to earn the repayment). Career Status Bonus (retirement bonus) during your time in a combat zone.

>If you are in a combat zone while on leave from a duty station located outside the combat zone, or traveling over or through a combat zone between two points that are outside a combat zone, your pay does not qualify as a combat zone exclusion.

>Partial (month) service. If you serve in a combat zone for one or more days during a particular month, you are entitled to an exclusion for that entire month.

>Form W-2. The wages shown in box 1 of your annual Form W-2 should not include military pay set aside according to the combat zone exclusion provisions. If you do include these wages, you will need to get a corrected Form W-2 from your finance office. You cannot exclude as combat pay any wages mistakenly shown in box 1 of Form W-2.

>Notifying the IRS by email about combat zone service.Working with the DoD, the IRS identifies taxpayers who are serving in a combat zone in order to suspend compliance actions, such as audits or enforced collections, until 180 days after the taxpayer has left the zone. If you qualify for such combat zone relief, you may also notify the IRS directly of your status by writing to a special email address - combatzone@irs.gov. Include your name, stateside address, date of birth, and date of your deployment to the combat zone.

>Note: Do not include any social security numbers in an e-mail.

>This notification can be made by the taxpayer, the taxpayer’s spouse, or an authorized agent or representative. The IRS cannot provide tax account information by email, but it will respond to any questions about a taxpayer’s account by regular mail within two business days using the address it has on file. The IRS may provide general answers to questions regarding the status of individual combat zone updates via this email address.

>Definition of Combat Zone. A combat zone is any area the President of the United States designates by Executive Order as an area in which the U.S. Armed Forces are engaging or have engaged in combat. An area usually becomes a combat zone and ceases to be a combat zone on the dates the President designates by Executive Order. The following areas have been designated as combat zones:
>Afghanistan. This includes the airspace above Afghanistan.
>The Kosovo area. The following locations (including air space above) have been designated as a combat zone and a qualified hazardous duty area:
>Federal Republic of Yugoslavia (Serbia/Montenegro)
>Albania
>The Adriatic Sea
>The Ionian Sea - north of the 39th parallel (including all of the airspace in connection with the Kosovo operation.)
>Persian Gulf area. The following locations (including air space above) have been designated as a combat zone:
>The Persian Gulf
>The Red Sea
>The Gulf of Oman
>The part of the Arabian Sea that is north of 10 degrees north latitude and west of 68 degrees east longitude
>The Gulf of Aden
>The total land areas of Iraq, Kuwait, Saudi Arabia, Oman, Bahrain, Qatar, and the United Arab Emirates
>Qualified hazardous duty area. A qualified hazardous duty area in the former Yugoslavia is treated as if it is a combat zone. The qualified hazardous duty area includes:
>Bosnia and Herzegovnia
>Croatia
>Macedonia

>Note: The preceding information should not be construed as tax advice. For specific tax advice, consult the Internal Revenue Service, or a tax professional.