Troops Get Federal Tax Break For Combat Zone Service
By Gerry J. Gilmore
American Forces Press Service
WASHINGTON, March 11, 2004 American troops serving in designated combat zones in support of the war against terrorism continue to get a tax break from Uncle Sam.
Depending upon rank, eligible service members can exclude from federal income tax either all or some of their active duty pay and certain other pays earned in any month during service in a designated combat zone.
The Internal Revenue Service's Armed Forces' Tax Guide for 2003 says "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."
Service members who serve one or more days in a designated combat zone are entitled to federal tax exclusion benefits for that entire month, according to the IRS.
Current designated combat zones include, Afghanistan, Iraq and other specified parts of the Persian Gulf region -- to include Kuwait, Saudi Arabia, Oman, Bahrain, Qatar and the United Arab Emirates and parts of the Kosovo area.
Service members in several other areas specified in law as "qualified hazardous duty areas" are eligible for the same tax breaks. Bosnia-Herzegovina, the Former Yugoslav Republic of Macedonia and Croatia have been listed since 1995.
The downloadable Armed Forces' Tax Guide for 2003 can be accessed on the IRS Web site. It lists many, but not all, designated combat zones.
Some service members providing direct support for military operations within a designated combat zone or qualified hazardous duty area, such as Djibouti, Africa, Turkey, Yemen, and the Philippines, are eligible for income tax exclusions.
To be in direct support of a combat zone, a service member must be serving in an area the secretary of defense determines is directly supporting a combat zone. Service members deployed to Mediterranean waters east of 30 degrees east longitude also are eligible for combat zone tax relief, from March 19 to Aug. 1, 2003, as an "in direct support" area. Service members serving in Israel from Jan. 1 to Aug. 1, 2003, also were serving in an "in direct support" area.
While military members can use the tax guide in preparing their 2003 federal tax returns, those who have specific questions about designated combat zones should contact their unit personnel or pay officials or unit tax assistance officer.
The IRS guide notes service members normally don't need to claim the combat zone exclusion or subtract eligible earnings on their federal tax returns. The services normally have already excluded combat zone earnings from the taxable gross income reported on service members' Form W-2s, the guide says.
The IRS points out that military retired pay and pensions aren't eligible as combat zone income tax exclusions.
In other military pay news, The National Defense Authorization Act for 2004 extended the increase in imminent danger pay to $225 per month to eligible service members through Dec. 31, 2004.
The amount of service member federal tax relief depends upon a taxpayer's rank. For example, enlisted troops and warrant officers serving in a designated combat zone or qualified hazardous duty area for any part of a month exclude all gross income earned for military service that month from federal taxation.
For commissioned officers, the monthly income exclusion is capped at the highest enlisted member pay (E-9), plus any hostile fire or imminent danger pay received. For example, in 2003, the most a commissioned officer could earn tax- free each month was $5,957.70. For 2004, the cap increases to $6,315.90 ($6,090.90, the highest monthly enlisted pay, plus $225 hostile fire or imminent danger pay.)
The IRS also allows troops deployed to an area entitled to combat zone tax exclusion extra time to file their federal taxes, usually 180 days after the service member leaves the combat zone or qualified hazardous duty area.
And, the Military Family Tax Relief Act of 2003 provides certain above-the-line tax deductions for reservists and National Guard members who travel more than 100 miles to attend military drills and meetings. This new provision allows reservists and Guard members who cannot itemize deductions to still take these deductions. This provision is effective for the 2003 tax year.
The act also provides a $12,000 nontaxable death gratuity to families of service members who die on active duty, retroactive to Sept. 10, 2001.
Internal Revenue Service
IRS Armed Forces' Tax Guide for 2003