Questions & Answers

What combat pay is eligible for a Missouri subtraction?

The IRS allows enlisted members, warrant officers, and commissioned warrant officers to exclude their military pay received while serving in a combat zone, or while hospitalized as a result of injuries incurred while serving in a combat zone. The exclusion of combat pay received by a commissioned officer (other than a commissioned warrant officer) is limited to the highest rate of enlisted pay. Subtract all military income received while serving in a combat zone, which is included in federal adjusted gross income (FAGI) and is not otherwise excluded.

In most cases, combat pay is not included in Box 1, Wages, of Form W-2 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 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 to indicate $80,000. He is entitled to a subtraction of $30,000, which represents the portion of Box 1 of Form W-2 attributable to combat pay that is included in his FAGI.

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