The new law makes it clear that contractors or employees of contractors providing support to U.S. Armed Forces in designated combat zones are eligible to claim the foreign earned income exclusion. As in the past, the foreign earned income exclusion is not available to federal employees or members of the military.
Are combat zones tax free?
Earnings received while in the combat zone are excluded from taxable income. This exclusion is unlimited for enlisted members and warrant officers and is limited to $7368.30 per month in 2009, for officers.
What is combat zone tax benefits?
Generally, any form of military pay earned while on deployment in a combat zone is excluded from federal income tax. This translates to a significant tax savings for the active service member in combat and his family back home.
Do foreign contractors pay U.S. taxes?
The US company doesn’t need to report the payments they made to the foreign independent contractor to the IRS if they are not US-sourced income. The company also doesn’t need to withhold any tax. However, the company does need to collect W-8BEN(E) as proof of the contractor’s status.
How to send a Combat Zone tax notice?
Covered civilian taxpayers who receive a notice from the IRS regarding a collection or examination matter should return the notice to the IRS with the words “COMBAT ZONE” and the deployment date in red at the top of the notice and put “COMBAT ZONE” on the envelope so the IRS can suspend the action.
Can a person live in a combat zone?
He or she meets either the bona fide residence test or the physical presence test. Full details on these tests can be found in Publication 54. Under prior law, many otherwise eligible taxpayers who lived and worked in designated combat zones failed to qualify because they had an abode in the United States.
Can a military contractor claim the foreign earned income exclusion?
The Bipartisan Budget Act of 2018, enacted in February, changed the tax home requirement for eligible taxpayers, enabling them to claim the foreign earned income exclusion even if their “abode” is in the United States. The new law applies for tax year 2018 and subsequent years.
What can a civilian contractor do for the military?
Civilian contractors work for private military companies, government, international, and civil organizations. They are authorized to aid the military and help improve situations. It’s a risky job because of the location.
