In most cases, combat pay is not included in Box 1, Wages, of Form W-2 (W2) and therefore is not included in FAGI. However, if Box 1 includes combat pay, the portion consisting of combat pay may be taken as a subtraction for Missouri purposes.
EXAMPLE 1: A resident of Missouri is an enlisted member of the military. He enters a combat zone in July and is there through December. He earns $12,000 January through June, and earns $20,000 July through December. Box 1 of his Form W-2 (W2) should only indicate the $12,000 he received prior to entering the combat zone. He is not entitled to a subtraction, as his combat pay is not included in his FAGI.
EXAMPLE 2: A resident of Missouri is a high-ranking commissioned officer. He enters a combat zone in July and is there through December. He earns $50,000 January through June, and earns $70,000 July through December. The IRS limits his exclusion to $40,000, causing Box 1 of his Form W-2 (W2) to indicate $80,000. He is entitled to a subtraction of $30,000, which represents the portion of Box 1 of Form W-2 (W2) attributable to combat pay that is included in his FAGI.