Income earned in combat zones is not taxed, however, the Child Tax Credit and the Earned Income Tax
Credit are dependent on taxable-income figures. This previously had left a number of members at a
disadvantage, Army Lt. Col. Janet Fenton said. “These two particular credits, in order to qualify for
them, require you to have income that’s included for income tax purposes as gross income,” said Colonel
Fenton, executive director of the Armed Forces Tax Council. “So a lot of our junior members were losing
out on these tax credits because it appeared for tax purposes that they did not have (enough) taxable
income.” That problem has been corrected by the Working Families Tax Relief Act of 2004, effective Oct.
4. To assist, the Defense Finance and Accounting Service will report tax-exempt pay earned in a combat
zone in Box 14 of each members’ W-2 form.
