To amend the Internal Revenue Code of 1986 to exclude from gross income the earnings from certain overseas deployments of members of the Armed Forces.

Summary

Expands the existing combat-zone pay exclusion so members of the Armed Forces who “served overseas” can exclude some or all qualifying pay from gross income for federal taxes. The change applies to both enlisted members and commissioned officers, excludes service overseas while on permanent change of station (PCS) orders, and treats U.S. territories and possessions as part of the United States. The amendment takes effect for taxable years beginning after December 31, 2025.

• Adds a new category allowing Armed Forces members who "served overseas" to exclude qualifying pay from gross income.
• Applies to both enlisted personnel and commissioned officers equally.
• Defines "overseas" as any area outside the United States and specifies that PCS service overseas is excluded.
• Treats U.S. territories and possessions as part of the United States for the purpose of these definitions.
• Effective for taxable years beginning after December 31, 2025.
• Modifies 26 U.S.C. § 112 (combat pay exclusion) and updates related headings/table entries.
• Does not appropriate funds or create new spending; it changes tax liability for affected service members.
• May require IRS and Department of Defense coordination for implementation and documentation.