Combat Pay or Special Combat Pay

There have been different types of compensation packages recommended for military work. Certain military compensation analysts have strongly recommended for across-the-board pay hike rather than a selective pay rise.

The percentage increase in salary is targeted for a particular pay grade for several years of service, where special pay and bonuses are given for particular occupational skills.
 
Many components of the military compensation system are important to the recruiting and retention efforts and do not involve cash payments.

The recruiting and retention problem in such services cannot be solved by increasing the pay package.

A wide range of areas like health, housing, moving costs, exchanges, commissaries, and other retail and recreational facilities should be addressed and regulated.

Studies claim that a sense of patriotism and public service can be developed by offering certain special combat pay for combat-ready armed forces.

The Department of Defence standards philosophy for compensation is to increase wages with increased danger or risk. 

History of military compensation 

Two compensation components, HFP / IDP and Combat Zone Tax Exclusions (CZTE), are distributed very differently among the service people. 

• Hostile Fire/Imminent Danger Pay (HFP/IDP). - The badge pay for combat infantry was given for combat risks in World War II, designed to boost flagging infantry morale.

• Badge pay was given only to the infantry, and once awarded; the infantryman would continue to get the compensation until the entitlement was curtailed (in 1949). 

• Similarly, income was given to service members deployed in Korea (1952), representing the first modern form of direct compact compensation.

• In the year, advanced pay was awarded to a member serving at least six days in such units or those injured, wounded, or killed in hostile fire.

• In 1963, the term of such benefit expired, and the Korean armistice was reauthorized.

• Decades after this, the Vietnam War had the policy of zonal eligibility where in the absence of major conflict, the department issued new designations in the 1970s and 80s.

• The Vietnam Combat Zone continued long after the operations concluded, where the main aim was to ensure the prisoners of war or members of the missing in action got the benefit until the POWs were released in 1996. 

•  Identical recognition was given to the deployments in Afghanistan and Athens, while different hazards and hardships existed in such deployments.  

• The Balkans' situations were mainly about NATO peacekeeping, and there was political reluctance to create a combat zone. Later, the Kosovo and Afghanistan zone supported operations in the Middle East & Asian countries. 

• Each year the members deployed in such areas, the person becomes eligible to exclude from federal income tax the total income received if they are an enlisted member up to $7,714.80, or the upper limit to get the benefit. 

The actual value depends on the factors – 

• Income tax scale, family / spousal income, and marginal tax rates. The greater the spousal income higher the CZTE.

• The larger the family, the greater the exemptions.

• Deductions, additional income, other tax variables and credits should be considered to calculate an individual's benefit.

• The benefit is more if the time spent on such deployment is greater. 

Administration 

• Income exclusion due to such deployment affects income and creates liability for various federal and state programs. In contrast, the major benefit program for the military person is the EIC, which is taken to determine the value of the CZTE. 

• Distribution of the filed number of months of deployment across the tax year directly impacts the amount, and the lower-income groups have higher EIC benefits.

• Terminating such benefits requires an executive order or a provision of law. The benefits depend on the distinction between the termination of the combat zone and the termination of benefits. 

• Also, there is a special provision for a refundable tax credit for low-wage earners and their families. 

Depending on the personal tax year dates, income exclusion due to deployment in such areas can reduce taxable income by over $91K in the current or next financial year.