Combat Zone Tax Exclusion (CZTE)
Benefit Fact Sheet
Soldiers 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 warrant officers 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.
Soldiers may be entitled to CTZE 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.
Soldiers 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 Soldiers or warrant officers for any month during any part of which the Soldiers perform active duty in a combat zone or qualified hazardous duty area, qualifying them for CZTE. Bonuses and special pays are also excluded from taxable income if earned in the same month in which the Soldier served in a combat zone.
For commissioned officers, the maximum monthly CZTE 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. Basic pay for the Sergeant Major of the Army is $9,109.50. Combat Zone Tax Exclusion for O-1 and above is based on this basic pay rate plus HFP/IDP - up to a maximum of $225 per month. Prior to December 31, 2011, members eligible for IDP 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 IDP payments, limiting eligibility to only the actual days served in a qualifying area. Now Soldiers will receive $7.50 for each day they are on official duty in an IDP area up to the maximum monthly rate of $225. HFP remains at $225 per month.
Military pay received by Soldiers 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 2-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 2 years after the date of termination of the combat zone.
A Soldier 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 CZs: 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 CZ: The Federal Republic of Yugoslavia (Serbia and Montenegro), Albania, the Adriatic Sea, and the Ionian Sea north of the 39th parallel. (Note: The CZ 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 QHDAs.
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 entitles to CZTE OR QHDA exclusion for any month during any part in which the Soldier (Department of Defense (DoD) Financial Management Regulation (FMR) Volume 7A, Chapter 44, Paragraph 440203, Subparagraph B5):
Performs military duties in areas outside the CZ or QHDA in direct support of military operations in the CZ or QHDA 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 CZ or QHDA.) Unit commanders who believe that their personnel qualify for CZ or QHDA 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:
Internal Revenue Service Publication 3:
DoD FMR Volume 7A, Chapter 44:
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:
Hostile Fire/Imminent Danger Pay: