What is nontaxable combat pay?
Nontaxable combat pay is any amount of income you have earned while you were an enlisted member, warrant office, or commissioned warrant officer and you were stationed in a combat zone.
Nontaxable combat pay is not included in your total gross income  and is not taxed.
When and where is Nontaxable Combat Pay used?
Combat areas are designated by the President. They currently include:
- Pakistan, Tajikistan, and Jordan
- Incirlik Air Base, Turkey
- Kyrgyzstan and Uzbekistan
- Parts of the Mediterranean Sea
- Kosovo including Serbia, Albania, Adriatic Sea, and Ionian Sea
- Arabian Peninsula Areas including the Persian Gulf, Red Sea, Gulf of Oman, Gulf of Aden, Bahrain, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates, and specific parts of the Arabian Sea
- Yugoslavia including Bosnia, Herzegovina, Croatia, and Macedonia
More on Nontaxable Combat Pay
You should notify the IRS by e-mail that you are serving or have served in a combat zone. You can read how to notify them  on the IRS website. The notification can also be made by a spouse or an authorized agent or representative.
If you and your spouse are both serving in the U.S. Armed Forces and are both stationed in a designated combat zone, you both can qualify for the tax exclusion.
If you are injured and hospitalized while serving in a combat zone, any gross income earned during the period of hospitalization is also not taxed. There is a limitation.
Any payment for service outside of the designated combat zone is not excluded from income and is eligible to be taxed at the standard tax rates .