A member of the US armed forces is allowed to fully deduct any pay he or she receives for active duty in a combat zone. A combat zone is decreed by an executive order that comes directly from the president of the US. Combat zone is where the US armed forces are about to engage with the enemy or already have done so. The pay for active duty doesn’t have to be received in the same period that the combat zone was designated or while you were hospitalized for injuries received during this period or even in the same year as the executive order to qualify for the combat zone exclusion. All enlisted personnel, warrant officers, and commissioned warrant officers qualify for the combat zone exclusion. Retirement pay or pensions don’t apply.
Military pay received for active duty is fully deductible for the months you served in the combat zone and even if you only served two days in the whole month in the combat zone, the pay for that month applies for combat zone exclusion. If you are hospitalized or injured for that month and you were injured or got sick while serving in the combat zone, the military pay for the period that you were hospitalized can be fully deducted. But two years after combat activities in the combat zone cease to exist you can’t deduct military pay while in the hospital using this exclusion. Also if you are hospitalized for a disease that you contracted while serving outside the combat zone and then while in the combat zone you are hospitalized for it then the military pay you receive during this time doesn’t apply for combat zone exclusion.
Following pays, allowances, awards, and repayments are excluded from your gross income while serving in a combat zone and must be earned in the same month:
Following areas have been decreed by an executive order as combat zones:
The Balkan area - By Executive Order No. 13119 and Public Law 106-21 designated the following as combat zones and qualified hazardous duty areas beginning March 24, 1999:
The Persian Gulf area - By Executive Order No. 12744, the following locations (and airspace) were designated as a combat zone beginning January 17, 1991:
Other qualified hazardous areas that are treated the same as combat zones are:
Members of the US armed forces that are serving in support of the following operations are treated as serving in the combat zone only for the extension of their deadlines; they don’t enjoy the other tax benefits of the combat zone exclusion:
Some members of the armed forces qualify for the combat zone status solely based on their participation in direct support of the operation in the combat zone or for special military pay for duty subject to imminent danger and hostile fire even if they are situated outside the combat zone.
On the other hand some members of the armed forces while in the combat zone don’t qualify for the combat zone exclusion. This includes situations where you are in the combat zone on a leave from a station located outside the combat zone or traveling through a combat zone from outside the combat zone and your destination is also outside the combat zone. If you are in the combat zone for personal reasons the military pay doesn’t qualify for combat zone exclusion
