Sponsors
The bill increases and clarifies tax exclusions for combat-related pay—benefiting service members, including those in U.S. territories—but reduces federal revenue and adds potential administrative and eligibility complexity around PCS months.
Active-duty enlisted and commissioned service members serving overseas will have more combat-related pay excluded from taxable income, lowering their federal tax liability.
Service members stationed in U.S. territories are explicitly treated as serving in the 'United States' for purposes of the exclusion, preventing unintended taxable exposure and clarifying eligibility.
Expanding the exclusion for combat-related pay will reduce federal income tax revenue, potentially increasing the deficit or reducing funds available for other government programs.
Excluding months under permanent change-of-station (PCS) orders from eligibility could create disputes and additional compliance burden for service members and for IRS administration.
Based on analysis of 2 sections of legislative text.
Expands the tax-free combat zone exclusion to cover months a servicemember "served overseas" (excluding PCS months) and defines "overseas" and "United States."
Introduced January 7, 2026 by Michael Dennis Rogers · Last progress January 7, 2026
Expands the existing tax exclusion for military pay by excluding months that a servicemember "served overseas" from taxable income, while excluding months spent overseas under permanent change of station (PCS) orders. It defines "overseas" as any area outside the United States (with U.S. territories counted as part of the United States) and takes effect for tax years beginning after December 31, 2025.