Military Contracts

[Jade06]

I had a client come in today with his wife's W2 with no Q in box 12 stating that it was combat zone pay. She isn't in the Armed Forces. I thought there was no exemption for that income without the box 12 code of Q on the W2. He called her and she said she messed up the form and now she needs to fill out an IRS form for the exclision. Does anyone know what form that is? Thanks a million, ahead of time.

Jade!!

[taxmandan]

I had a client come in today with his wife's W2 with no Q in box 12 stating that it was combat zone pay. She isn't in the Armed Forces. I thought there was no exemption for that income without the box 12 code of Q on the W2. He called her and she said she messed up the form and now she needs to fill out an IRS form for the exclision. Does anyone know what form that is? Thanks a million, ahead of time.

Jade!!

If she's not in the military why would she get combat pay in box 12? Combat pay exclusion applies only to active duty and reserve personnel in the military under the control of the DOD. Civilians don't qualify as far I know.

[Jade06]

There was nothing in box 12. Sorry if I worded this wrong. He said all of the w2 income was earned in a combat zone. She works through a military contract. So I said to him she isn't in the armed forces so there isn't anything on the w2 saying it's combat pay. Which would be a code Q in the box 12 on the W2. He left and came back saying that she needs to file a form with the IRS to have that income qualify for combat zone pay therefore making it nontaxable. My questions: Was I right in telling him it was all taxable? And is there such a form to make her income from that w2 nontaxable?

[taxmandan]

3 more days!

I would have told him the same, I've not heard of any form to claim civilian pay in a combat zone is nontaxable. I've done a couple of returns for clients who were civilians in Iraq and the only exclusion is the foreign income exclusion IF they meet the time requirements. One of them was told when he signed up that it was all nontaxable, but his W-2 correctly showed everything in box 1 and nothing in 12, and he said later they changed their tune about it being nontaxable.

[Jade06]

Thank you. He elected to go else where today. Shame really a nice guy. The foreign income exclusion is all I could think of as well so that's what I told him and he said he wanted to go somewhere else. Not a problem for me. Gave him his info and that was that.

Jade!!