A combat zone is an area which is designated by the president of United States. The following amounts can be excluded from the income of enlisted personnel from their income –
- The compensation you receive for service while in a combat zone. This exclusion is available only for a limited amount for officers.
- A bonus for the re-enlistment is exempt if your voluntary extension or re-enlistment occurs in a month when you were serving in a combat zone.
- The payment you received for accrued or earned leave in a month when you served in a combat zone.
- The pay you received for the duties as a member of armed forces messes, clubs and station theaters as well as other non appropriated fund activities is excluded. The only condition is it must be earned when you were serving in a combat zone.
- The amount of awards you receive for any suggestions, any inventions or any scientific achievements because of a submission to you made in the period you were serving in a combat zone.
- Pay for imminent danger or hostile fire pay.
- The amount incurred towards the repayments of student loans which are attributable towards the period of service in a combat zone (this is subject to a condition that you have performed a full year service to earn repayment)
Exclusion for partial service
If you are serving in a combat zone for a few days during a particular month, you are entitled to the exclusion for the entire month. Also the period of service in a combat zone includes your absence because of sickness or leave. If you are present in a combat zone while on leave when you are posted outside the combat zone, then you do not qualify for these exclusions.
Your service outside a combat zone is also considered as service in a combat zone if it is directly supporting military operations in the combat zone.
The IRS usually identifies the taxpayers who are serving in a combat zone in order to suspend compliance actions like tax audit for the period of 180 days after that taxpayer leaves the combat zone.
If you qualify for such exclusions, you can notify IRS directly by a special e-mail at the e-mail address – firstname.lastname@example.org providing name, address, date of birth and the date of deployment. You should never include your social security number in such e-mails. Also remember, IRS never provides tax account information by e-mails.
The IRS has had a new section on its website which contains important information as a help to the active military of the United States armed forces, in order to ensure that they get maximum benefits of tax they are entitled to.
Remember, the exclusions apply only to your earnings while in a combat zone. However you are still required to pay the taxes on your investment or income from interest.