For 2002, the most
an officer could earn tax-free each month was $5,532.90 ($5,382.90, the
highest monthly enlisted pay, plus $150 hostile fire or imminent danger
pay). The Emergency Wartime Supplemental Appropriations Act of 2003 (P.L. 108-11)
raised the imminent danger pay to $225 per month through September
2003. The 2004 National Defense Authorization Act extended this higher
rate through December 2004. For 2003, the monthly combat pay exclusion
for officers totals $5,957.70. For 2004, it totals $6,315.90. Amounts
excluded from gross income are not subject to federal income tax.
Q-3: My husband and I are both enlisted
personnel serving in the U.S. Armed Forces in the combat zone. Are we
each entitled to the income tax exclusion for military pay?
A-3: Yes, each of you qualifies for the income tax
exclusion for your respective military pay.
Q-4: I am a member of the U.S. Armed Forces
stationed on a ship outside any combat zone. I fly missions over a
combat zone as part of the military operations in that combat zone. Is
any part of my military pay excluded from gross income?
A-4: Yes. The combat zone includes the airspace over
it, so you are serving in the combat zone. See Q&A-2 above for a
discussion of the amount of your military pay that is excluded.
Q-5: If I am injured and hospitalized while
serving in the U.S. Armed Forces in a combat zone, is any of my military
pay excluded from gross income?
A-5: Yes. Military pay received by enlisted personnel
who are hospitalized as a result of injuries sustained while serving in
a combat zone is excluded from gross income for the period of
hospitalization, subject to the 2-year limitation provided below.
Commissioned officers have a similar exclusion, limited to the maximum
enlisted pay amount per month. (See Q&A-2 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.
Q-6: My wife is currently serving in the U.S.
Armed Forces in a combat zone and will be eligible for discharge when
she returns home. If she is discharged upon her return, will the payment
for the annual leave that she accrued during her service in the combat
zone be excluded from gross income?
A-6: Yes. Annual leave payments to enlisted members of
the U.S. Armed Forces upon discharge from service are excluded from
gross income to the extent the annual leave was accrued during any month
in any part of which the member served in a combat zone. If your wife is
a commissioned officer, a portion of the annual leave payment she
receives for leave accrued during any month in any part of which she
served in a combat zone may be excluded. The annual leave payment is not
excludable to the extent it exceeds the maximum enlisted pay amount (see
Q&A-2 above) for the month of service to which it relates less the
amount of military pay already excluded for that month.
Q-7: I am an enlisted person serving in a
combat zone. If I reenlist early while I am in the combat zone and
receive my reenlistment bonus several months later when I am stationed
outside the combat zone, is any part of my reenlistment bonus excluded
from gross income?
A-7: Yes. The reenlistment bonus is excluded from
gross income although received in a month that you were outside the
combat zone, because you completed the necessary action for entitlement
to the reenlistment bonus in a month during which you served in the
combat zone.
Q-8: My brother, who is a civilian in the
merchant marine, is on a ship that transports military supplies between
the United States and the combat zone. Is he entitled to the combat zone
military pay exclusion?
A-8: No. Those serving in the merchant marine are not
members of the U.S. Armed Forces. The combat zone military pay exclusion
applies only to members of the U.S. Armed Forces. Neither federal
civilian employees nor civilian defense contractors deployed with U.S.
forces qualify for an exclusion of income earned while working in a
combat zone or qualified hazardous duty area. They may, however, qualify
for an extension
of deadlines to file and pay taxes.
The U.S. Armed Forces include all regular and reserve
components of the uniformed services that are under the control of the
Secretaries of Defense, Army, Navy, and Air Force, and the Secretary of
Homeland Security with respect to the Coast Guard.
Q-9: My husband is a member of the U.S. Armed
Forces performing services related to a combat operation but he is not
in the combat zone and he is not receiving hostile fire/imminent danger
pay. Is he entitled to the military pay exclusion?
A-9: No. U.S. Armed Forces personnel serving outside
the combat zone are not entitled to the military pay exclusion unless
they are serving in direct support of military operations in the combat
zone for which they receive hostile fire/imminent danger pay. The
Department of Defense certifies areas that
meet these requirements.
Q-10: How do I certify my entitlement to the
military pay exclusion?
A-10: Your service branch must certify your
entitlement on the Form W-2 it provides you. If you believe you are
entitled to the exclusion, but it is not reflected on your Form W-2, ask
your service branch to issue a corrected Form W-2.
For more details on the exclusion
of military pay,
see
Publication 3, Armed Forces' Tax Guide.
This article is from the IRS
Website and appears
HERE.
Related Articles:
Military Tax
Relief
Military Tax Relief 2
Military Spouse Careers
American Jobs Creation Act of 2004
Missed Tax Deductions
