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Miscellaneous Provisions — Combat Zone Service

Last updated May 22, 2007

Q-32: My daughter is a member of the U.S. Armed Forces and served in a combat zone in 2005. She made calls to me here in the United States. Were those calls exempt from the federal excise tax on toll telephone service?

A-32: Yes. Telephone calls that originated within a combat zone and that were made by members of the U.S. Armed Forces serving were exempt from the federal excise tax on toll telephone service, provided a properly executed certificate of exemption was furnished to the telephone service provider receiving payment for the call.

If you did not have a certificate of exemption, your daughter can request a refund on an amended 2006 federal income tax return. There is a line for claiming the telephone excise tax refund.

In May 2006, the IRS announced that it would no longer collect the federal excise tax on toll telephone service or bundled service. Further, the IRS announced that it would refund the federal excise tax paid on toll telephone service or bundled service to taxpayers who requested the refund on their 2006 income tax return. More information on the telephone excise tax refund is available. 

Q-33: How will my military pay for active service in the U.S. Armed Forces in a combat zone appear on my Form W-2, Wage and Tax Statement?

A-33: Military pay attributable to your active service in the combat zone that is excluded from gross income will not appear on your Form W-2 in the box marked "Wages, tips, other compensation." However, military pay for such service is subject to social security and medicare taxes and will appear on your Form W-2 in the boxes marked "Social security wages" and "Medicare wages and tips." If you believe you are entitled to the military pay exclusion, but it is not reflected on your W-2, ask your service branch to issue a corrected Form W-2.

Q-34: I am serving in a combat zone, and all of my pay for the year is tax-free. Can I put money into an IRA?

A-34: Yes. A recent law change makes it possible for members of the military to count tax-free combat pay when figuring how much they can contribute to a Roth or traditional IRA. Before this change, members of the military whose earnings came from tax-free combat pay were often barred from putting money into an IRA, because taxpayers usually must have taxable earned income.

The IRA contribution limit for 2006 is $4,000 for those under age 50 and $5,000 for those 50 and over.

Taxpayers choosing to put money into a Roth IRA don’t need to report these contributions on their individual tax return. Roth contributions are not deductible, but distributions, usually after retirement, are normally tax-free. Income limits and other special rules apply.

On the other hand, contributions to a traditional IRA are often, though not always, deductible, and distributions are generally taxable. Deductible or not, contributions to a traditional IRA must be reported on the return for the year made. Deductible contributions are claimed on Form 1040, 1040A or 1040NR. Nondeductible contributions are reported on Form 8606, which is normally attached to one of these individual return Forms.

For more information about Roth and traditional IRAs, see Publication 590, Individual Retirement Arrangements.

Q-35: I have been serving in a combat zone, and all of my earnings have been tax-free. Can I go back and put money into an IRA for any earlier years?

A-35: Yes. Under a special rule, members of the military who received tax-free combat pay in 2004 and 2005 can go back and make IRA contributions for those years. Eligible military members will have extra time, until May 28, 2009, to make these special back-year contributions.

For those under the age of 50, the IRA contribution limit was $3,000 for 2004 and $4,000 for 2005. For those 50 and over, the limit was $3,500 for 2004 and $4,500 for 2005.

If a return has already been filed for a particular year, contributions should be reported on an amended return, Form 1040X. Depending upon the circumstances, military personnel who choose to put money into a traditional IRA for 2004 or 2005 may qualify for additional tax refunds.

For more details on tax issues related to military service, see Publication 3, Armed Forces' Tax Guide.

Page Last Reviewed or Updated: 17-Apr-2014