If you are an eligible military member who served in a combat zone, your income is not taxed. However, you can use it as an income source in order to receive the Earned Income Tax Credit.
A combat zone is an area where U.S. armed forces are engaging in or have engaged in combat AND the area must be designated as a combat zone by a presidential executive order.
Nontaxable combat pay will usually be shown on your W-2, Box 12 with code Q.
See: Combat Zones Approved for Tax Benefits
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