Rosen, Blackburn, Horsford Introduce Bipartisan, Bicameral Bill to Expand Tax Relief for Remotely Piloted Aircraft Crews Operating in Combat Zones

IRS Publication 3, Armed Forces Tax Guide, is   another source for  military-specific tax matters. If you are an eligible member who served in a combat zone, the IRS can exclude your income from taxation. Publication 3, Armed Forces’ Tax Guide, the authoritative source for all military specific tax matters, covers the Combat Zone Exclusion.

Combat Zone Tax Exclusions

Due to the nature of certain types of business, an individual who does not have a regular or principal place of business will be deemed to have a tax home at the individual’s regular place of abode. The regular abode of a worker in a combat zone is likely to be his home in the United States. Most individuals must file their tax return by the regular due date (April 15). If you were serving in a combat zone or outside the U.S., you are eligible for an extension. Note that any normal tax extension is not an extension of time to pay any tax owed by the regular due date of the return. Therefore, interest and/or penalties might be charged on any taxes owed from April 15, 2023 to the date the taxes are paid.

Combat pay tax exclusion

Some military members who were not considered eligible in past tax years may be eligible now due to reclassification of certain military duty as combat or combat related. You don’t have to report income received during service in a combat zone as gross income. If you want, you’re allowed to include the CZTE-qualifying income as taxable income. At first glance, it may not make sense to do so, but increasing your taxable income might help you qualify for the Earned Income Tax Credit. Under the Tax Cuts and Jobs Act (TCJA) enacted in December 2017, members of the  Army, Navy, Marines, Air Force and Coast Guard who performed services in the Sinai Peninsula can now claim combat-zone tax benefits.

Combat Zone Tax Exclusions

This list is subject to change due to legislation, declaration of an end to hostilities, Presidential order, or other factors. Always consult a tax professional or the IRS official site to learn what the most current combat zones may be. At the time of this writing the following areas are or were considered recognized combat zones. The Internal Revenue Service itself does not classify what regions are considered combat zones. But the IRS does have a broad definition of what kinds of combat duty may qualify for this federal tax break for military income.

State Tax Relief for U.S. Troops Serving in a Combat Zone

Generally, you are a resident of the state from which you entered the military. © 2023 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. The agency needs additional information about your return. After comparing the results, you can file using whichever scenario leads to a higher return.

You are entitled to imminent danger pay when you are assigned to a designated IDP area. Hostile fire and imminent danger pay is paid at a rate of $7.50 per day, up to a maximum of $225 per month. However, service members who are exposed to a hostile fire event or mine explosion are eligible to receive the full monthly amount. 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.

Understanding Veteran’s Disability and Taxes: Is VA Disability Taxable?

The following countries were certified by the Department of Defense for combat zone benefits due to their direct support of military operations in the Afghanistan combat zone. See what other tax deductions you may qualify to claim on your 2022 Tax Return. You can also use our free tax calculators and tools to calculate taxes or determine eligibility for certain tax credits. Then, to get a complete idea of your taxes, see the free tax estimator before you complete and e-File Your 2022 Tax Return on The eFile app will calculate and report the correct tax breaks based on your answers to several simple questions.

  • The eFile app will calculate and report the correct tax breaks based on your answers to several simple questions.
  • For instance, some types of pay are not taxable (i.e. allowances for uniforms and Reserve Officers’ Training Corps, or ROTC) and there are several tax-free expenses you do not have to report on your tax return.
  • The excludable amount shouldn’t be in your W-2, Box 1 wages.
  • Some states have certain limited exemptions for military retirement pay.
  • By Executive Order No. 13239, Afghanistan (and the airspace above) was designated as a combat zone beginning Sept.19, 2001.
  • The 180-day extension period does not begin until after you leave the combat zone.

E-File your 2022 Tax Return on to easily report this information. Armed Forces Reserves, you can generally deduct the costs of travel on your return. This includes unreimbursed travel costs while you are performing reserve duties more than 100 miles from your home. If you are wondering where to retire as military, this table outlines how all 50 states tax military retirement income with specific exemptions criteria and amounts; it also includes information on state sales tax and property taxes. 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.

Military Pay Calculator

An individual domiciled in California when entering the military is considered a nonresident while stationed outside California on permanent change of station (PCS) orders. © 2023 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. The above information is not intended to be “written advice concerning one or more Federal tax matters” subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230 as the content of this document is issued for general informational purposes only. When you prepare and e-File with your 2022 Tax Return on, the eFile app will generate the proper forms and help you complete and file them with your Form 1040. In this case, the form generated is the Form 3903, Moving Expenses – eFileIT.

Combat Zone Tax Exclusions

The Foreign Earned Income Exclusion (FEIE) applies to defense contractors and employees of contractors (as well as other expats). The Foreign Earned Income Exclusion allows you to exempt a portion of the compensation you earn while residing outside of the United States. The first $108,700 of foreign compensation earned in the year 2021 can be exempt from income tax in the US. Any wages and self-employment income above this amount is taxable. This foreign earned income exclusion helps keep your total taxable income considerably lower, often resulting in little or no US taxes.

The combat zone exclusion applies to wages and compensation paid by the US government to military and civilian employees. To qualify, employees must be serving in a designated combat zone or hospitalized as a result of 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 2022 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.