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COMBAT ZONE SERVICE: A TAX BREAK THE HARD WAY

April 04, 2003

The IRS has collected in one web page the tax benefits available to armed forces personnel serving in combat zones.

There are two major benefits - filing extensions and income exclusions.

EXTENSIONS are automatically granted for those serving in combat zones. The extensions to file returns and pay taxes run until 180 days after leaving the combat zone or 180 days after continuous hospitalization from combat zone injuries.

EXCLUSIONS. Armed forces personnel can exclude a number of items from their income:

-Active duty pay earned in any month served in a combat zone.

-Imminent danger/hostile fire pay and military pay earned while hospitalized as a result of wounds, disease or injury incurred in the combat zone.

-A reenlistment bonus if the voluntary extension or reenlistment occurs in a month served in combat zone.

-Pay for accrued leave earned in any month served in combat zone. (The Department of Defense 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 earned in a month served in a combat zone.

-Awards received for suggestions, inventions or scientific achievements because of a submission made in a month in a combat zone

CURRENT COMBAT ZONES

The current combat zones eligible for these breaks:

The following locations (and airspace above) in the Persian Gulf area were designated as a combat zone beginning January 17, 1991. The area includes 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 and the total land areas of Iraq, Kuwait, Saudi Arabia, Oman, Bahrain, Qatar and the United Arab Emirates.

Kosovo area, beginning Mar. 24, 1999 -- Federal Republic of Yugoslavia (Serbia and Montenegro), Albania, the Adriatic Sea and the Ionian Sea north of the 39th Parallel.

Afghanistan, beginning Sept. 19, 2001.

Pakistan, Tajikistan and Jordan - beginning Sept. 19, 2001

Incirlik Air Base, Turkey - beginning Sept. 21, 2001

Kyrgyzstan and Uzbekistan - beginning Oct. 1, 2001

Philippines - beginning Jan. 9, 2002

Yemen - beginning Apr. 10, 2002

Djibouti - beginning July 1, 2002

Public Law 104-117 designates three parts of the former Yugoslavia as a Qualified Hazardous Duty Area, to be treated as if it were a combat zone, beginning Nov. 21, 1995 -- Bosnia and Herzegovina, Croatia, and Macedonia.

IOWA FOLLOWS FEDERAL RULES in excluding combat zone pay.

The Iowa Senate Ways and Means Committee has approved a bill (SF 434) to exempt active duty pay of reservists form income taxes. Active duty pay for service in Bosnia-Hercegovinia since Novemeber 21, 1995 is exempt from Iowa taxes.

UPDATE: For information on 2003 legislation affecting Armed Forces personnel, go here.

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