Tax benefits for deployments Published Jan. 20, 2009 By Sara Bender 354th Fighter Wing Legal Office EIELSON AIR FORCE BASE, Alaska -- Many airmen filing taxes will benefit from military pay exclusion for service in a combat zone. The Internal Revenue Service defines a combat zone as an area where members of the Armed Forces have or are currently been engaged in combat and is designated by the president in an executive order. As an enlisted member in a combat zone, all military pay is excluded from tax liability and will not be reflected in the wages portion of the IRS form W-2. Commissioned officers can only exclude combat pay up to the highest rate of enlisted pay for any month served in a combat zone. This pay exclusion also applies when a military member is hospitalized outside the combat zone due to injuries or illnesses that occurred in the combat zone. In some cases service outside of the combat zone can be eligible for combat zone exclusion. The Department of Defense must designate the service in direct support of combat zone operations or the duty must qualify the member to receive special pay due to hostile fire or imminent danger. This pay will also not be reflected in the wages portion of the W-2. In addition to pay exclusion, military members who are serving in the combat zone may also be eligible to suspend IRS actions until 180 days after returning from combat service. This includes audits and enforced collections of back taxes. It is important to understand tax benefits as a member of the military. Receiving combat zone exclusion may significantly reduce tax liability and may provide a temporary reprieve from IRS actions. For additional information go to: http://www.irs.gov/publications/p3/index.html.