Combat
Zone Exclusions
Being assigned to or working in a combat zone triggers another tax advantage.
Earnings received while in the combat zone are excluded from taxable income.
This exclusion is unlimited for enlisted members and warrant officers and is limited to $7100.10 per month in 2008, for officers. If you spend
a single qualifying day in the combat zone, your pay for the entire month
is excluded from taxable income.
Bonuses and special pays are also excluded from taxable income if within
the previously stated limitations and earned in the same month in which
you served in a combat zone. For example, an enlisted reenlistment bonus
is excluded from taxes if the member reenlists in the same month in which
the member served in a combat zone. Since there is no limitation on amounts
excluded for enlisted members, the entire reenlistment bonus would be
excluded. As another example, an officer's flight pay would also be excluded
from taxable income, but only up to the point which basic pay and the
flight pay do not exceed the maximum enlisted pay amount. The Career Status
Bonus received by members who may choose between High-3 and CSB/REDUX
retirement plans and who elect the CSB/REDUX retirement plan also falls
in this category. To be considered "earned" in the combat zone,
the CSB/REDUX election must be accepted by the Service and considered
final in the month in which the member was in the combat zone.
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