New Bill Would Give Civilians in Combat Zones a Tax Break

Civilian federal employees serving in combat zones would receive the same tax credit available to military personnel who work alongside them, under a new bipartisan bill.

The Combat Zone Tax Parity Act (H.R. 4621) aims to address a shortage of civilian workers staffing dangerous regions by extending a federal income tax break to those employees. Civilian employees who opt for hazardous overseas duty often perform important jobs in fields such as transportation reconstruction and health care, but do not qualify for income tax exemptions on their base pay like active duty military personnel do. Most civilians working abroad in such areas are employees of the Defense and State departments, the intelligence community and the U.S. Agency for International Development.

“Many of our dedicated civil servants answer a ‘call to duty’ that takes them away from their families and exposes them to imminent danger to life and limb,” said National Active and Retired Federal Employees Association President Joseph Beaudoin in a statement. “They may not wear uniforms, but they often stand shoulder to shoulder amidst hostile fire with those who do.”

Under the combat zone tax credit, an enlisted service member’s pay for time in combat is exempt from federal income taxes. For commissioned officers, the amount of pay excluded is capped at the highest enlisted pay level, plus any hostile or imminent danger pay received. Federal contractors also can qualify for certain tax credits, though not under the same provision. Contractors and other non-federal employee U.S. citizens living and working overseas have to pay foreign taxes and are eligible for federal income tax exemptions in the United States, including a foreign earned income exclusion of more than $97,000 -- a benefit not available to federal workers serving abroad in combat or non-combat zones. Federal employees do not have to pay foreign taxes.

Three Virginia lawmakers are co-sponsoring the legislation: Republicans Rob Wittman and Frank Wolf, and Democrat Gerry Connolly. Similar legislation has been introduced in previous Congresses, but has never made it out of committee.