Airmen and Guardians who serve in a combat zone can exclude certain pay from their taxable income. The Combat Zone Tax Exclusion (CZTE) is unlimited for enlisted members and is limited to the maximum enlisted pay amount, plus the amount of Hostile Fire Pay / Imminent Danger Pay payable to the officer for the qualifying month, for officers.

Airmen and Guardians may be entitled to Combat Zone Tax Exclusion for any month or partial month in which they:

• Perform active service in a combat zone or qualified hazardous duty area

• Become a prisoner of war or missing in action while in active service in a combat zone or qualified hazardous duty area

• Are granted official leave, are authorized to depart from assigned duty in a zone or qualified hazardous duty area for other lawful cause, or are directed to perform temporary duty, and the departure or return is on any day of the month. (Exception: when the absence on leave, TAD, or TDY extends over a period, which includes a full calendar month)

• Are present, however briefly, in the combat zone or qualified hazardous duty area on official duty requiring presence in that zone or area.

Service members in the combat zone or qualified hazardous duty area merely for their own convenience, e.g., while on leave from a duty station not in the zone or area, are not entitled to the exclusion.

All compensation of enlisted service members for any month during any part of which the service members perform active duty in a combat zone or qualified hazardous duty area, qualifying them for Combat Zone Tax Exclusion (CZTE). Bonuses and special pays are also excluded from taxable income if earned in the same month in which the service member served in a combat zone.

For commissioned officers, the maximum monthly Combat Zone Tax Exclusion amount month equals the sum of the highest rate of enlisted basic pay payable plus the amount of Hostile Fire Pay / Imminent Danger Pay payable to the officer for the qualifying month. Current basic pay for a Chief Master Sergeant of the Air Force is $10,294.80 per month. Combat Zone Tax Exclusion for O-1 and above is based on this basic pay rate plus Hostile Fire Pay / Imminent Danger Pay - up to a maximum of $225 per month. Prior to December 31, 2011, members eligible for Imminent Danger Pay were paid the full monthly rate of $225 for any complete or partial month they served in a qualifying area. The 2012 National Defense Authorization Act modified Imminent Danger Pay payments, limiting eligibility to only the actual days served in a qualifying area. Now service members will receive $7.50 for each day they are on official duty in an Imminent Danger Pay area up to the maximum monthly rate of $225. Hostile Fire Pay remains at $225 per month.

Military pay received by service members hospitalized as a result of injuries or illness sustained while serving in a combat zone is excluded from gross income for the period of hospitalization, subject to the two-year limitation provided below. For commissioned officers the amount of exclusion is limited to the maximum enlisted pay amount per month as described above. These exclusions from gross income for hospitalized enlisted personnel and commissioned officers end two years after the date of termination of the combat zone.

• A service member who dies in a combat zone or qualified hazardous duty area, or as a result of wounds, disease, or injury incurred while serving in the combat zone or qualified hazardous duty area (including under subparagraph 440203.D.1, above) is exempt from income tax for: The taxable year in which death occurs

• Any prior taxable year ending on or after the first day served in a combat zone or qualified hazardous duty area

• Any such tax for prior years that remain unpaid at date of death

Designated combat zones are listed in Department of Defense (DoD) Financial Management Regulation (FMR) Volume 7A, Chapter 44, Paragraph 440203 (DoD FMR Vol. 7A, Ch 44):

• Effective January 17, 1991, Executive Order 12744 designated the following areas (including air space and adjacent waters) as Combat Zones: Persian Gulf; Red Sea; Gulf of Oman; Gulf of Aden; that portion of the Arabian Sea that lies north of 10 degrees N. Lat., and west of 68 degrees E. Long.; and the total land areas of Iraq, Kuwait, Saudi Arabia, Oman, Bahrain, Qatar, and the United Arab Emirates

• Effective March 24, 1999, Executive Order 13119 designated the following areas (including the airspace above) as a Combat Zone: The Federal Republic of Yugoslavia (Serbia and Montenegro), Albania, the Adriatic Sea, and the Ionian Sea north of the 39^th parallel. (Note: The Combat Zone designation for Montenegro and Kosovo (previously a province within Serbia) under Executive Order 13119 remains in force even though Montenegro and Kosovo became independent nations since Executive Order 13119 was signed in March 1999.) Additionally, Public Law 106-21, dated April 19, 1999, designated these same areas as Qualified Hazardous Duty Areas.

• Effective September 19, 2001, Executive Order 13239, December 12, 2001, designates Afghanistan, including the air space above, as an area in which Armed Forces of the U.S. are and have engaged in combat.

A member of the Armed Services is entitled to Combat Zone Tax Exclusion OR Qualified Hazardous Duty Area exclusion for any month during any part in which the airman or guardian (Department of Defense (DoD) Financial Management Regulation (FMR) Volume 7A, Chapter 44, Paragraph 440103):

• Performs military duties in areas outside the Combat Zone or Qualified Hazardous Duty Area in direct support of military operations in the Combat Zone or Qualified Hazardous Duty Area and qualifies for hostile fire or imminent danger pay under Chapter 10. (The hostile fire or imminent danger pay entitlement must be related to activities or circumstances in the Combat Zone or Qualified Hazardous Duty Area) Unit commanders who believe that their personnel qualify for Combat Zone or Qualified Hazardous Duty Area treatment under this provision shall request certification from the applicable approval authority as designated by the Secretary of Defense.

For more tax information, please see:
https://www.irs.gov/Individuals/Military

Internal Revenue Service Publication 3:
https://www.irs.gov/pub/irs-pdf/p3.pdf

DoD FMR Volume 7A, Chapter 44: 
https://comptroller.defense.gov/Portals/45/documents/fmr/Volume_07a.pdf

For additional information on possible changes to this benefit as a Wounded Warrior, please visit the Wounded Warrior Pay section of the Defense Finance and Accounting Services (DFAS) website at:
https://www.dfas.mil/militarymembers/woundedwarrior/woundedwarriorpay/