Active duty service members who serve in a combat zone during the current tax year receive special tax benefits.
Earned Income Credit Calculation
Combat pay is indicated by code Q in Box 12 of the military W-2. Combat pay is not taxable on the federal return, however it can be included in earned income for the purpose of calculating the Earned Income Credit. ProWeb will automatically include combat pay in the EIC calculation if it results in a higher amount.
Note that for the purpose of the EIC calculation, combat income cannot be partially included - it's either all or none.
Labeling the return as a combat zone return
The Department of Defense informs the IRS about military servicemembers who are serving in a combat zone, thus the IRS is aware of their status. Civilian taxpayers who are eligible for military tax benefits, on the other hand, should indicate on their tax return that they are working in a combat zone.
To indicate that the taxpayer and/or spouse served in a combat zone, from the Federal Section of the tax return (Form 1040) select:
- Basic Information
- Personal Information
- Taxpayer or Spouse served in a Combat Zone during the current tax year - Check the box, select the combat zone, and enter the date of deployment.
Filing, Tax Payment, and Extension Deadlines
Military members serving in a combat zone also receive special "Extension of Deadlines" for filing their tax return(s) as well as paying taxes that may be owed.
The IRS offers an automatic 2-month extension for servicemembers who are serving outside the United States, but for those also serving in a designated combat zone there are additional allowances made as follows:
- 180 day extension after the later of either
- the last day served in a combat zone, have qualifying service outside the combat zone, or serve in a contingency operation.
- the last day of any continuous qualified hospitalization for injury from service in the combat zone or contingency operation or while performing qualifying service outside the combat zone.
- In addition to the 180 days, the deadline is extended by the number of days that were left for the taxpayer to take action with the IRS when they entered a combat zone. For more details and specific examples, see IRS Publication 3 - Armed Forces' Tax Guide.
Note: This is a brief article regarding the tax return for a member of the military serving in a combat zone. It is not intended as tax advice.