Sponsors (2)
The bill clarifies tax exclusion for active-duty compensation going forward and prevents retroactive tax liability, but ambiguous wording could narrow the exclusion, raise taxes for some service members, and generate IRS and taxpayer compliance burdens.
Active-duty service members are protected from retroactive tax liability because the change applies only to taxable years and periods of active service after enactment.
Service members gain clearer statutory limits on which compensation is excluded from taxable income for active service, reducing ambiguity about tax treatment going forward.
If the enacted wording narrows the exclusion, some service members could face higher taxable income and larger tax bills for pay received after enactment.
The ambiguous insertion of the phrase 'such term' may create uncertainty about which compensation is excluded, prompting disputes with the IRS and potential litigation for service members.
Implementing and interpreting the change could increase IRS administrative burden and compliance costs for taxpayers and the Treasury while guidance is issued.
Based on analysis of 2 sections of legislative text.
Inserts the words “such term” into both subsections (a) and (b) of 26 U.S.C. §112, changing the statutory exclusion for certain military compensation.
Official title: To amend the Internal Revenue Code of 1986 to exclude certain combat zone compensation of certain servicemembers relating to remotely piloted aircraft from gross income.
Introduced December 19, 2025 by Steven Horsford · Last progress December 19, 2025
Amends the federal tax code by inserting the phrase “such term” into both subsection (a) and (b) of 26 U.S.C. §112, which governs an exclusion for certain military compensation; the change applies to compensation received in taxable years ending after enactment and to periods of active service after enactment. The textual insertion is small but substantive because the phrase’s referent is not explicitly identified in the amendment text, so the change could narrow or otherwise alter how the exclusion applies to affected service members (interpretation will depend on statutory context and IRS/treasury guidance.