Soldiers Get Special Tax Exceptions

Soldiers in combat, too busy or too far from home to file their taxes, get special exceptions at tax time. The assistance includes flexible filing deadlines, tax-free combat pay (search) and delayed audits.

Pay earned in combat zones (search) is tax-free to most military personnel, a benefit available to a husband and wife if they both served in combat. Soldiers can qualify if they served in designated combat zones, which currently include regions in the Arabian Peninsula, Afghanistan and Kosovo.

The untaxed pay can now help soldiers who qualify for the tes with combat injuries. Soldiers serving abroad outside of combat zones don't get the deadline extension.

The extensions also don't apply to civilian employees of defense contractors unless they serve in a combat zone in support of U.S. armed forces.

The IRS (search) extends audit and collection deadlines for military personnel in combat and suspends installment plan payments for soldiers who owe unpaid income taxes when they enter combat.

The tax-free combat pay should be reflected on the Form W-2 sent to each soldier to report annual income. The death benefit paid to survivors of soldiers killed in combat is also tax-free.

The IRS instructs military personnel and their families to write "COMBAT ZONE" and their deployment date in red ink at the top of their tax returns.

Military personnel can also ask the IRS to suspend collection action by returning notices to the IRS with "COMBAT ZONE" and their deployment date written on the envelope.