Combat Zone Compensation Issue Examined

Meanwhile, CRS has issued a separate report examining—but coming to no conclusion on—issues related to taxability of compensation for civilians, including civilian federal employees, working in military combat zones. Pending legislation (HR-294) would extend to civilians the combat zone income tax exclusion applying to military personnel serving in the combat area; no comparable provision for civilian exists under current tax law, although there are certain income tax exclusions for U.S. citizens who work overseas. CRS said that if the purpose of extending the combat zone tax exclusion is to provide additional compensation to those individuals, a direct payment may be more effective. However, if the purpose is to provide equity between military and civilian personnel, then distinctions between military service and civilian employment—for example, that military personnel cannot resign—become important, CRS said.