Combat pay is income earned while stationed in a designated combat zone in service to the U.S. military. Combat pay is nontaxable for most service members, and all service members can exclude at least some of their combat pay from their taxable income. Nontaxable combat pay can be included on the tax return to calculate eligibility for the Earned Income Credit.
Not all military income is considered combat pay, so service members should always evaluate their income when filing a tax return.
Remember also that service members stationed overseas for an extended period that overlaps with Tax Day (usually April 15) are automatically allowed an extra two months both to file and to pay any taxes owed.