By Gerry J. Gilmore<br />American Forces Press Service<br /><br />WASHINGTON, March 11, 2004 – American troops serving in designated combat zones<br />in support of the war against terrorism continue to get a tax break from Uncle<br />Sam.<br /><br />Depending upon rank, eligible service members can exclude from federal income<br />tax either all or some of their active duty pay – and certain other pays –<br />earned in any month during service in a designated combat zone.<br /><br />The Internal Revenue Service's Armed Forces' Tax Guide for 2003 says "a combat<br />zone is any area the president of the United States designates by executive<br />order as an area in which the U.S. armed forces are engaging or have engaged in<br />combat."<br /><br />Service members who serve one or more days in a designated combat zone are<br />entitled to federal tax exclusion benefits for that entire month, according to<br />the IRS.<br /><br />Current designated combat zones include, Afghanistan, Iraq and other specified<br />parts of the Persian Gulf region -- to include Kuwait, Saudi Arabia, Oman,<br />Bahrain, Qatar and the United Arab Emirates – and parts of the Kosovo area.<br /><br /><br />Service members in several other areas specified in law as "qualified hazardous<br />duty areas" are eligible for the same tax breaks. Bosnia-Herzegovina, the<br />Former Yugoslav Republic of Macedonia and Croatia have been listed since 1995.<br /><br />The downloadable Armed Forces' Tax Guide for 2003 can be accessed on the IRS<br />Web site. It lists many, but not all, designated combat zones.<br /><br />Some service members providing direct support for military operations within a<br />designated combat zone or qualified hazardous duty area, such as Djibouti,<br />Africa, Turkey, Yemen, and the Philippines, are eligible for income tax<br />exclusions.<br /><br />To be in direct support of a combat zone, a service member must be serving in<br />an area the secretary of defense determines is directly supporting a combat<br />zone. Service members deployed to Mediterranean waters east of 30 degrees east<br />longitude also are eligible for combat zone tax relief, from March 19 to Aug.<br />1, 2003, as an "in direct support" area. Service members serving in Israel from<br />Jan. 1 to Aug. 1, 2003, also were serving in an "in direct support" area.<br /><br />While military members can use the tax guide in preparing their 2003 federal<br />tax returns, those who have specific questions about designated combat zones<br />should contact their unit personnel or pay officials or unit tax assistance<br />officer.<br /><br />The IRS guide notes service members normally don't need to claim the combat<br />zone exclusion or subtract eligible earnings on their federal tax returns. The<br />services normally have already excluded combat zone earnings from the taxable<br />gross income reported on service members' Form W-2s, the guide says.<br /><br />The IRS points out that military retired pay and pensions aren't eligible as<br />combat zone income tax exclusions.<br /><br />In other military pay news, The National Defense Authorization Act for 2004<br />extended the increase in imminent danger pay to $225 per month to eligible<br />service members through Dec. 31, 2004.<br /><br />The amount of service member federal tax relief depends upon a taxpayer's rank.<br />For example, enlisted troops and warrant officers serving in a designated<br />combat zone or qualified hazardous duty area for any part of a month exclude<br />all gross income earned for military service that month from federal taxation.<br /><br />For commissioned officers, the monthly income exclusion is capped at the<br />highest enlisted member pay (E-9), plus any hostile fire or imminent danger pay<br />received. For example, in 2003, the most a commissioned officer could earn tax-<br />free each month was $5,957.70. For 2004, the cap increases to $6,315.90<br />($6,090.90, the highest monthly enlisted pay, plus $225 hostile fire or<br />imminent danger pay.)<br /><br />The IRS also allows troops deployed to an area entitled to combat zone tax<br />exclusion extra time to file their federal taxes, usually 180 days after the<br />service member leaves the combat zone or qualified hazardous duty area.<br /><br />And, the Military Family Tax Relief Act of 2003 provides certain above-the-line<br />tax deductions for reservists and National Guard members who travel more than<br />100 miles to attend military drills and meetings. This new provision allows<br />reservists and Guard members who cannot itemize deductions to still take these<br />deductions. This provision is effective for the 2003 tax year.<br /><br />The act also provides a $12,000 nontaxable death gratuity to families of<br />service members who die on active duty, retroactive to Sept. 10, 2001.<br /><br />Related Web Sites:<br />Internal Revenue Service [http://www.irs.gov/]<br />IRS Armed Forces' Tax Guide for<br />2003 [http://www.irs.gov/pub/irs-pdf/p3.pdf]