Sponsors (2)
The bill clarifies and tightens the tax treatment of combat zone pay—reducing uncertainty and enforcement burdens for service members and the IRS—but it is not retroactive and imposes modest implementation costs on Treasury/IRS and some taxpayers.
Military personnel: Combat zone pay will have a clearer, more precisely defined tax treatment under the Internal Revenue Code, reducing uncertainty about whether pay is excluded from taxable income.
Taxpayers and the IRS: More precise statutory language should reduce disputes and audits over the combat pay exclusion, lowering compliance burden and enforcement costs.
Taxpayers and military personnel with prior service: The change is not retroactive for service before the effective date (applies only to taxable years ending after enactment for service after that date), so some individuals won't receive relief for earlier years.
Treasury, IRS and taxpayers: The IRS and Treasury will incur administrative and one-time implementation costs to update guidance, forms, and systems to reflect the amended wording.
Based on analysis of 2 sections of legislative text.
Clarifies and broadens the Internal Revenue Code exclusion for combat zone compensation so more qualifying pay can be tax-exempt for active service after enactment.
Introduced December 19, 2025 by Steven Horsford · Last progress December 19, 2025
Amends the Internal Revenue Code to expand and clarify the tax exclusion for compensation earned for active service in a combat zone. The change inserts the phrase "such term" in relevant places in IRC §112 to broaden how the combat zone compensation exclusion is applied, and it affects pay received for active service after the date of enactment.