There is a federal exemption to income for military income earned if the taxpayer served in a combat zone.

Here are the requirements:

1. You must be a member of the United States Armed Forces .
2. Entitlement to the compensation must have fully accrued in a month during which the member served in a designated combat zone or was hospitalized as a result of wounds, disease, or injury incurred while serving in a designated combat zone.

There is no required action for you to receive the exclusion. Each military organization will automatically certify your entitlement by excluding reportable income on your W-2.

For more information and the source of the above, follow this link:

https://www.irs.gov/individuals/military/tax-exclusion-for-combat-service