Combat Zone Tax Breaks for Non-Military Workers

By Stephen Barr
Friday, July 28, 2006

Federal employees serving in combat zones would receive the same tax exemptions on their pay as those provided military personnel under a bill introduced in the House yesterday.

"It is only equitable that both military and civilian employees who are serving side by side receive the same tax treatment," Rep. Frank R. Wolf (R-Va.), the bill's chief sponsor, said in a statement.

About 2,000 civil service and Foreign Service employees are serving in combat zones, primarily in Iraq and Afghanistan. Although some received orders for deployment, most are volunteers who hold critical jobs related to reconstruction projects in transportation and health care, according to Wolf's office.

Currently, enlisted military personnel and warrant officers in a combat zone receive tax exemptions on their pay. An officer's pay is untaxed up to $6,724 a month, under exemption rules linked to the basic pay rate for senior enlisted personnel and imminent danger pay, a Pentagon spokeswoman said.

Federal contractors in combat zones also can qualify for exemptions under a tax provision called the "foreign earned income exclusion," the spokeswoman said. If the contract employee meets certain business requirements, he or she can exclude up to $80,000 of their foreign earned income. Contractors, however, can be subject to income tax levied by a foreign country.

Under the rules, pay received as an employee of the U.S. government does not qualify for the foreign earned income exclusion.

J. Anthony Holmes , president of the American Foreign Service Association, welcomed Wolf's initiative. "It is very fair and appropriate that the Congress provide equal benefits in terms of our taxation system to colleagues who are working under dangerous conditions," he said.

The bill's co-sponsors include Reps. Thomas M. Davis III (R-Va.), Lincoln Diaz-Balart (R-Fla.), Steny H. Hoyer (D-Md.), Walter B. Jones Jr. (R-N.C.), Thaddeus G. McCotter (R-Mich.), James P. Moran (D-Va.), John J.H. "Joe" Schwarz (R-Mich.) and Chris Van Hollen (D-Md.) and Del. Eleanor Holmes Norton (D-D.C.), a Wolf spokesman said.

Wolf's proposal will have to pass muster with the House Ways and Means Committee, which controls tax-related legislation. Wolf's spokesman said "we are hopeful" that the bill can be put on a fast track for approval.

Other House members also have sponsored bills to address financial inequities or hardships facing federal employees. The House Government Reform Committee recently passed a bill, sponsored by Rep. Tom Lantos (D-Calif.), that would make up the difference in pay for members of the National Guard and reserves who earn less on active duty than they do in their civil service jobs. Lantos aides are trying to get the bill cleared for a fast-track vote in the House.

Most federal employees serving in Iraq and Afghanistan work for the Defense and State departments, the Agency for International Development and intelligence agencies, such as the CIA. The number serving in combat zones varies by the week; recent tallies showed 1,088 Defense civilians in Iraq and 530 Defense civilians in Afghanistan and about 180 Foreign Service officers in Iraq and about 100 stationed in Afghanistan.

In his statement, Wolf pointed out that the Pentagon's new National Security Personnel System calls for a "total force" of uniformed personnel and civilians, and that the war on terrorism is requiring federal employees to take on "more and more responsibility every day."

He asked, "How can we tell them we will not give them a fair and equitable tax credit that recognizes their hard work, dedication and sacrifice?"

Talk Shows

Charles L. Fallis , president of the National Active and Retired Federal Employees Association, will be the guest on "FEDtalk" at 11 a.m. today on and WFED radio (1050 AM).

Henrietta Holsman Fore , State Department undersecretary for management, will be the guest on "The IBM Business of Government Hour" at 9 a.m. Saturday on WJFK radio (106.7 FM).

Stephen Barr's e-mail address

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