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Pay & Allowances
Combat Zone Tax Exclusion (CZTE)
What is Combat Zone Tax Exclusion (CZTE) and who is eligible to receive it?
If you are a Service Member serving in a combat zone (any area the President of the United States designates by Executive Order as an area in which the U.S. Armed Forces are engaging or have engaged in combat), you are able to exclude portions of your income from federal and state taxation. If you serve in a combat zone for one or more days during a particular month, you are entitled to combat zone tax exclusion for that entire month.
All of the compensation of an enlisted member or warrant officer is excluded from taxation, however, compensation for a commissioned officer is subject to a maximum. Maximum CZTE equals the sum of the highest rate of enlisted pay payable plus the amount of hostile fire/imminent danger pay payable to the officer for the qualifying month.
State income tax withholding is not taken from income that is excluded for federal taxation due to service in a combat zone. However, some states allow only partial exclusion or none at all, so you may owe state taxes, depending on the laws of your state of legal residence.
Military pay earned while hospitalized as a result of wounds, disease, or injury incurred in the combat zone is also subject to CZTE. The exclusion of military pay while hospitalized does not apply to any month that begins more than 2 years after the end of combat activities in that combat zone. Hospitalization does not have to be in the combat zone.
Members may qualify for CZTE for military duties in direct support of military operations in the combat zone; applicable duties are certified by the approval authority designated by the Secretary of Defense.
View the Military Pay Tables for more information on basic pay and how it is impacted by CZTE.
For more information on deployed and wounded warrior pay entitlements, visit The DFAS Military Pay Website.
To view this FAQ's reference, visit the DoD FMR Volume 7A Chapter 44