Military Tax Tips: Combat Zone Tax Exclusion

Combat Zone Tax Exclusions

A member of the Air Force, stationed outside the combat zone, is shot while participating in aerial combat over the combat zone, but is not hospitalized until returning to the home base. The injury is incurred while serving in a combat zone. Except that the incubation period of the disease is one year. The disease is not incurred while serving in the combat zone. If an individual is hospitalized for wound, disease, or injury while serving in a combat zone, the wound, disease, or injury will be presumed to have been incurred while serving in a combat zone, unless the contrary clearly appears.

  • If you leave for service, your domicile is the same as it was before your service period, despite being absent for a long time from your state of domicile and residence in other jurisdictions.
  • The member may exclude from income the compensation received for those 25 days, even if the member performs no services in the combat zone in the year the compensation is received.
  • This translates to a significant tax savings for the active service member in combat and his family back home.
  • You might also be eligible for additional time to make a qualified contribution to an IRA, and be able to file an extension to complete your taxes without paying penalties.
  • If any of that income is correctly taxed by another state, then Iowa allows an Out-of-State Tax Credit on the IA 1040.
  • Periods during which a member of the Armed Forces is absent from duty on account of sickness, wounds, leave, internment by the enemy, or other lawful cause are periods of active service.
  • The Department of Defense determines the service is in direct support of combat zone military operations.

Periods during which a member of the Armed Forces is absent from duty on account of sickness, wounds, leave, internment by the enemy, or other lawful cause are periods of active service. Enlisted military members, warrant officers and commissioned warrant officers participating in military operations in a combat zone may be eligible for the CZTE, and there’s no cap on how much combat pay they can exclude from their taxable income. Military members who serve in a combat zone may be eligible for multiple tax benefits. These include the Combat Zone Tax Exclusion, which allows service people to exclude certain types of combat pay from their federal taxable income. 21st Space Wing Public AffairsWhat is a Combat Zone Tax Exclusion or CZTE? This federal tax break on military income is intended for military members assigned to a combat zone. In general, it excludes basic pay from federal income tax while it is earned in the combat zone.

Additional Resources

In some cases, you can also exclude military pay earned while hospitalized after leaving a combat zone. Your hospitalization must be due to a wound, disease, or injury incurred while you were serving in a combat zone. If, as part of your duty as a reservist, you must travel more than 100 miles from home, you should report this on your 2021 Tax Return. If you are moved permanently to a new station, you may deduct your moving expenses or be reimbursed for related costs such as mileage and lodging. If you are reimbursed, do not include this income as taxable income on your return. If you are not reimbursed, the amount will come as a deduction which will be reported on your return following the year the move occurred. The Combat Zone Tax Exclusion is a tax benefit which must be applied for when filing the current year’s tax returns or when filing amended returns for previous tax years.

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Combat Zone Tax Exclusions

There is a set of requirements for those who wish to claim military tax benefits on their federal income tax forms. Compensation paid to civilian employees of the federal government, including civilian employees of the Armed Forces, cannot be excluded under section 112, except as provided in section 112 . Members of the Armed Forces who serve outside a hazardous duty area while supporting operations in a hazardous duty area are eligible for a tax-filing extension. Meeting additional requirements may entitle you to full combat zone tax benefits.

Responding to an IRS inquiry letter

These tax breaks apply to other military-related jobs, which we’ll explore below. B is assigned to an air unit stationed in Nearby Country for the entire month of June. In June, members of air units of the Armed Forces stationed in Nearby Country fly combat and supply missions into and over Destination Country in direct support of military operations in the combat zone. B flies combat missions over Destination Country from Nearby Country from June 1 through June 8. B’s service qualifies B for hostile fire/imminent danger pay. Accordingly, B is deemed to serve in the combat zone during June and is entitled to the exclusion under section 112.

What is the difference between tax free and duty free?

Yes – even though the terms “duty-free” and “tax-free” are often used synonymously, there is a difference between them. “Duty-free” means that goods are free of excise duty (which applies only to tobacco, alcohol and mineral oils) whereas “tax-free” means that goods are free of VAT.

As a member of the United States Armed Forces who is residing overseas in a combat zone on the regular due date of the return, you may be granted an automatic two or even six month tax extension to file a federal income tax return and pay due tax each year. The 180 day period begins the day you leave the combat zone or the area is no longer designated Combat Zone Tax Exclusions a combat zone. For example, if you are overseas in a combat zone and away from your residency on or around Tax Day , then you typically will have until October 15 October 17, 2022 to file your 2021 Tax Return. B is a member of an Armed Forces ground unit stationed in the combat zone. On May 31, B’s unit crosses into Nearby Country.

What are the 2020 federal tax brackets?

For commissioned officers the amount of exclusion is limited to the maximum enlisted pay amount per month as described above. These exclusions from gross income for hospitalized enlisted personnel and commissioned officers end 2 years after the date of termination of the combat zone. Kentucky income tax is not required to be withheld from active duty military pay.If Kentucky income tax is incorrectly withheld from your active duty military pay after 2009, the Kentucky Department of Revenue will refund the tax withheld. Also, i​f the your only income is active duty military compensation, you are not required to file a Kentucky income tax return unless Kentucky income tax was withheld.

Under the Tax Cuts and Jobs Act enacted in December 2017, members of the U.S. Army, U.S. Navy, U.S. Marines, U.S. Air Force, and U.S. Coast Guard who performed services in the Sinai Peninsula can now claim combat zone tax benefits. Other income earned by an Iowa resident stationed in or out of Iowa is also taxable to Iowa to the same extent it is taxable on the federal level. If any of that income is correctly taxed by another state, then Iowa allows an Out-of-State Tax Credit on the IA 1040. This credit is calculated on the IA 130 form, which must be included with the IA 1040 with a copy of the other state’s return. If you’re employed under these rules, you’re not considered to be on active duty or inactive duty training.

You must include a statement with the return when it is filed indicating the dates you were in the combat zone. If you need assistance, please contact one of our U.S. toll-free or international tax assistance numbers or you may contact a service center for assistance. For military members, the tax break is simple.

Combat Zone Tax Exclusions

The exclusion under section 112 applies without regard to the marital status of the recipient of the compensation. If both spouses meet the requirements of the statute, then each spouse is entitled to the benefit of an exclusion.

What Is the Combat Zone Exclusion?

In order to have CZTE treatment of wages for services performed in a designated direct support area, a member must be entitled to hostile fire or imminent danger pay while performing service in the designated direct support area. If, as a result of serving in a combat zone, a person becomes a prisoner of war or is missing in action, that person is considered to be serving in the combat zone so long as he or she keeps that status for military pay purposes. One is Military and Served in a Combat Zone – The spouse who served in a combat zone may receive the tax exclusion for the months they were present in the combat zone.

Combat Zone Tax Exclusions

These tips are only meant to serve as a guide, and are subject to change. Please check with a qualified professional before filing your taxes with the IRS.

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