Combat pay is not included in box 1 wages on the service member’s Form W-2, but the amount is shown in box 12 of Form W-2, with code Q. If service members believe the taxable wages on Form W-2 are incorrect, they should contact the local accounting and finance or payroll office to request a corrected Form W-2.
Nontaxable combat pay may increase Child Tax Credit or the Earned Income Tax Credit. Enter all fields from Form W-2 when preparing the tax return. Be sure to consider the combat pay amount when calculating these credits. When figuring these credits, you may need to compare the credit with and without the inclusion of combat pay; choose the one that is most beneficial to the taxpayer.