A member assigned to or deployed to a combat zone receives "combat pay" (officially called "immiment danger pay") at the rate of $225.00 per month. In some locations, immiment danger pay is paid only for duty on the ground, and in other areas, ground, airspace, or duty aboard a ship at sea qualify.
Being assigned or deployed to a combat zone also triggers a tax advantage in some locations. Congress and/or the President can designated combat zones as "Tax Exempt" areas. Earnings received while in these combats zone are excluded from taxable income. (NOTE: This only applies to Federal Income Tax Withholding (FITW). A military member still pays social security taxes and Medicare Tax. Whether or not state tax is excluded is up to the individual state.
This exclusion is unlimited for enlisted members and is limited to the maximum enlisted pay amount for officers and warrant officers.
If you spend a single qualifying day in the combat zone, your pay for the entire month is excluded from taxable income, and you receive $225 in combat pay for that month.
Bonuses and special pays are also excluded from taxble income if within the previously stated limitations and earned in the same month in which you served in a combat zone. For example, an enlisted reenlistment bonus is excluded from taxes if the member reenlists in the same month in which the member served in a combat zone. Since there is no limitation on amounts excluded for enlisted members, the entire reenlistment bonus would be excluded. As another example, an officer's flight pay would also be excluded from taxable income, but only up to the point which basic pay and the flight pay do not exceed the maximum enlisted pay amount.
In addition to Immiment Danger Pay (Combat Pay), and the tax exclusion, some areas qualify for a special monthly allowance called "Hardship Duty Pay."
Military members with dependents also receive " Family Separation Allowance" (FSA) of $250.00 per month, anytime they are away from their families (due to military orders) for 30 days or longer.
Finally, members in a combat zone are authorized to to deposit up to $10,000 (per year) of their pay and allowances into a special savings account, that pays a guaranteed 10 percent interest per year. This program was established during the Vietnam era, and then phased out at the end of the Vietnam War. However, it was revived in 1991 during the Gulf War, and the program still exists today. In addition to the combat zones listed below, personnel stationed in Kazakhstan and Turkmenistan are eligible to use the program if they are supporting combat operations in Afghanistan.
For more details about immiment danger pay, see the Department of Defense (DOD) Pay Regulation, Volume 7A (Active Duty & Reserve Pay), Chapter 10 -- Special Pay—Duty Subject to Hostile Fire or Imminent Danger.
Here are the designated combat zones, as of January 1, 2009:
2010 Combat Zones
|Afghanistan||land and airspace|
|Bahrain||land and airspace|
|Greece||land (within 20k radius from center of Athens)|
|Iraq||land and airspace|
|Kosovo||land and airspace|
|Kuwait||land and airspace|
|Montenegro||land and airspace|
|Qatar||land and airspace|
|Saudi Arabia||land and airspace|
|Serbia||land and airspace|
|Somolia||land and airspace|
|Sudan||land and airspace|
|United Arab Emirates||land|
|Arabian Sea||north of 10 deg north lat, west of 68 deg east long.|
|Gulf of Aden||sea|
|Gulf of Oman||sea|
|Persian Gulf||sea and airspace|