Combat Zone Pay: The Military Exclusion
Published November 6, 2026
Members of the U.S. Armed Forces who serve in a combat zone may receive pay that is not included in income. Publication 3 (2025), the Armed Forces' Tax Guide, explains the rules. This guide is general information. It is not advice about your return.
What counts as combat zone pay
Publication 3 says combat zone pay is pay a member receives for service in one of three kinds of places: a combat zone designated by the President in an Executive order; a qualified hazardous duty area designated by Congress while the member receives hostile fire pay or imminent danger pay; or an area outside those zones when the Department of Defense certifies that the service directly supports military operations there and the member receives hostile fire pay or imminent danger pay.
Publication 3 lists the Afghanistan area, the Kosovo area, and the Arabian Peninsula as designated combat zones. It also says Congress designated the Sinai Peninsula of Egypt as a qualified hazardous duty area under certain circumstances. Check the current designations before you rely on them.
Service outside a combat zone
Publication 3 says service outside a combat zone can be treated as service in one when the Department of Defense designates it as direct support of combat zone operations, and the service qualifies you for hostile fire or imminent danger pay. The pay must also be verifiable by military pay records.
Which months count
The month must be one in which you either served in a combat zone or were hospitalized because of wounds, disease, or injury incurred while serving there. Publication 3 says any part of one or more days of combat zone service in a month makes the whole month eligible.
You do not have to receive the excluded pay while you are in the combat zone, while you are hospitalized, or in the same year you served there.
Retirement pay is different
Publication 3 says retirement pay and pensions do not qualify for the combat zone exclusion. It also says Combat Related Special Compensation, paid to certain retired veterans with combat-related disabilities, is excluded from income.
Rank sets the limit
Publication 3 says that if you are an enlisted member, a warrant officer, or a commissioned warrant officer, none of your combat zone pay is included in income.
Commissioned officers other than commissioned warrant officers have a limit. Their exclusion is capped at the highest rate of enlisted pay, plus any imminent danger or hostile fire pay received, for each eligible month. For 2025, Publication 3 gives $10,983 per month: $10,758 for highest enlisted pay plus $225 for imminent danger pay.
How it shows on your return
Publication 3 says you usually do not have to do anything for the exclusion to apply. It is reflected on your Form W-2. Box 1 of your 2025 Form W-2 should not include the excluded military pay. If it does, Publication 3 says to get a corrected Form W-2 from your finance office.
Publication 3 also says that although combat zone pay is excluded, you can elect to include it in income when you figure the earned income credit. Our guide to the earned income tax credit explains that credit.
Related military topics
Our guide to military moving expenses and Form 3903 covers moves for permanent change of duty station. Our guide to VA payments that are not taxable covers other military-related benefits.
Simple steps
- Note each month you served in a designated combat zone or area.
- Confirm your rank, and whether your pay is enlisted pay or officer pay.
- Check box 1 of your 2025 Form W-2 for any excluded military pay.
- Ask your finance office for a corrected Form W-2 if box 1 includes pay that should be excluded.
Upload your documents and answer a few simple questions. Your preparer reviews every deduction and credit and lets you know when your return is ready to sign.
Sources: Sources: IRS, Publication 3 (2025), Armed Forces' Tax Guide (https://www.irs.gov/pub/irs-pdf/p3.pdf) This is general information, not advice about your specific return.
