DEFINITION of 'Combat Pay'

Any person enrolled in a branch of the U.S. military that performs his or her duty in federally designated hazardous areas are eligible to receive combat pay. This monthly stipend is in addition to basic pay.

According to, members of the Armed Services qualify for combat pay if they are: subject to or wounded by hostile fire or explosive mines, or on duty on foreign soil and subject to the threat of physical harm or imminent danger due to civil unrest, civil war, terrorism or wartime conditions. Spending as little as one hour on duty in a hazardous zone still qualifies for an entire month’s combat pay.

Tax Exempt

Additionally, most combat pay is not considered taxable income. However, the recipient must still pay Social Security and Medicare taxes on the annual amount. Individual states set their own rules for taxing this extra pay.

Keep in mind that the Department of Defense can designate some combat zones exempt from the tax break.

Military personnel with dependents also receive a monthly Family Separation Allowance (FSA) any time they are away from their families for 30 or more days. Those serving in combat zones can also deposit up to $10,000 per year into a special savings account that pays a guaranteed 10 percent interest annually. This particular program was established during the Vietnam War.

A Little History

Recognizing combat risks with extra pay originated in World War II. Called “Badge Pay” back then, it was instituted to promote infantry morale. Some areas designated by the DoD as combat zones in the past, according to, include:

  • Afghanistan
  • Jordan, Kyrgyzstan, Pakistan, Tajikistan, and Uzbekistan
  • Philippines
  • Djibouti
  • Yemen
  • Somalia and Syria
  • The Federal Republic of Yugoslavia
  • Albania
  • Kosovo
  • The Adriatic Sea
  • The Lonian Sea – north of the 39th parallel
  • The Persian Gulf
  • The Red Sea
  • The total land areas of Iraq, Kuwait, Saudi Arabia, Oman Bahrain, Qatar, and the United Arab Emirates
  • Jordan


Military personnel who serve in a combat or hazardous duty zone for any time during the month will receive tax-free combat pay for that entire month. If they are hospitalized as a result of injury or illness of any kind that was received in one of these zones, then their pay received during convalescence will be excluded.

  1. Combat Zone

    Combat zone is an area designated as a war zone during a specified ...
  2. Hazardous Activity

    If one of your hobbies falls under an insurance company’s definition ...
  3. Base Pay

    Base pay is an employee's initial rate of compensation, excluding ...
  4. Military Clause

    A clause found in most residential leases that permits military ...
  5. Import Duty

    Import duty is tax collected on imports and some exports by a ...
  6. Enterprise Zone

    An enterprise zone is a geographical area where a government ...
Related Articles
  1. Personal Finance

    Tax Issues Transitioning Service Members Should Know

    Transitioning military personnel and their families face significant impacts to their tax situation. Here are nine things to consider.
  2. Personal Finance

    Economic Effects Of Life After Military Service

    The end of operations in Iraq and Afghanistan will have an impact on the economy. Discover how.
  3. Taxes

    How to File a Tax Extension

    Learn the process you need to follow to get an extra six months to file your tax return.
  4. Financial Advisor

    3 Federal Income Tax Facts You Didn't Know

    Learn about three federal income tax facts that most Americans may not know from one of the most trusted financial resources on the Web.
  5. Insights

    Why the South China Sea Dispute Matters for the United States

    The South China Sea dispute between China and other countries that border the area matters to the United States...
  6. Tech

    U.S. and Four Other Nations Launch Taskforce Against Crypto Tax Fraud

    The U.S., the Netherlands, Australia, Canada, and the U.K. will work together.
  7. Retirement

    When Do I Stop Paying Social Security Tax?

    Almost never, unless you belong to one of these special groups.
  8. Investing

    Timeless Ways To Protect Yourself From Inflation

    Inflation is a natural part of modern life, but there are some time-tested ways to inflation-proof your assets.
  9. Taxes

    Is it Smart to Avoid Paying Federal Income Tax?

    Not paying federal income taxes might sound appealing, but is it really a good idea?
  10. Personal Finance

    A Debt Free Life: Be Like Buffet, Don’t Lose Money

    Debt follows you wherever you go. Here's how to combat it.
  1. What are the most effective ways to reduce moral hazard?

    Discover when moral hazard occurs, what it means in different arenas, and effective tools for lenders, insurers, and employers ... Read Answer >>
  2. What is the difference between moral hazard and morale hazard?

    Insurance industry terms, morale hazard and moral hazard - know the difference. Read this article on Investopedia. Read Answer >>
Trading Center