Special tax benefits apply to members of the Armed Forces. You may be eligible for a combat zone exclusion, meaning that some or all of your combat pay could be tax-free. You could also get the exclusion if you’re hospitalized due to a combat zone injury.
Instead, however, you may choose to include your combat zone pay in your earned income to help figure your Earned Income Tax Credit, which could get you a bigger refund. Before choosing, figure the credit both with and without your combat pay to see which way is better for you.
You may also be able to deduct certain unreimbursable costs, like moving expenses if you’re transferred to a new duty station, or travel expenses if you’re a reservist and your duties take you more than 100 miles from home.
Be sure to claim all tax benefits that members of the military qualify for. You can get additional time to file if you’re stationed overseas or serving in a combat zone.
Get more information in IRS Publication 3, “Armed Forces’ Tax Guide”.