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Expands the tax exclusion for pay earned in a combat zone (the combat zone exclusion) to cover certain overseas deployments for both enlisted personnel and commissioned officers. It adds clear definitions for “overseas,” “served overseas,” and “United States,” and excludes months spent overseas under permanent change of station (PCS) orders. The change applies to tax years beginning after December 31, 2025.
The bill expands and clarifies tax-free treatment for certain overseas combat pay—helping affected service members and simplifying some filings—while modestly reducing federal revenue and introducing potential compliance complexity around PCS months.
Active-duty military personnel who served overseas (not on PCS) can exclude combat pay from taxable income, lowering their federal tax bills.
Service members and tax filers get clearer definitions of key terms ("overseas", "served overseas", "United States"), reducing ambiguity when claiming the exclusion and making tax filing more predictable.
Federal revenue is reduced by excluding additional pay from taxable income, which could slightly increase pressure on other taxpayers or force trade-offs in federal spending.
The PCS exclusion carve-out may create disputes about which months qualify as tax-exempt, increasing compliance costs, audit risk, or administrative burden for some service members.
Introduced January 7, 2026 by Michael Dennis Rogers · Last progress January 7, 2026