Special tax benefits are provided to Armed Forces personnel. A major tax-free benefit is the combat pay exclusion. Under this exclusion, members of the Armed Forces, including active duty reservists, may exclude from gross income all compensation for active service received for any month in which they served in a combat zone or were hospitalized as a result of any wound, injury, or disease incurred while serving in a combat zone. Commissioned officers are allowed an exclusion equal to the highest rate of basic pay at the top pay level for enlisted personnel, plus any hostile fire/imminent danger pay received for the month.
Other pay benefits may be tax free, and you may be able to get filing extensions and time extensions for home residence replacements. A list of tax-free benefits may be found in 35.2. Filing extensions are discussed in 35.5.
Combat zone designations apply to Iraq and neighboring areas in the “Arabian Peninsula,” Afghanistan, and the Balkans Kosovo area (35.4).