Internal Revenue Service United States Department of the Treasury
Level Basic Advanced Military International

Military Income Workout

Combat Zone Exclusion

Case Study 2: Combat Pay

Here's how a volunteer helped a taxpayer whose husband had combat pay:

Sample Interview
Let's talk for a minute about where your husband was stationed. My husband was in a combat zone for part of the year. Do I need to tell you the dates or anything?
The combat pay is not taxable, but it's shown on your husband's W-2, here in box 12, with Code Q. I will enter that into the system with the rest of the W-2 information because combat pay can increase some tax credits. I can show on the tax return that he was in the combat zone, but I don't need to know the exact dates. Is he serving in Iraq? That's right.

Harold Fannin's Form W-2 showing excluded combat pay in Box 12.