How Do We Treat Combat Pay and Special Combat Pay?

Award Year: 2024-25 KA-36620 Helpfulness Rating 93 page views

This guidance is specific to the 2024-25 award year and later. For 2023-24* award year guidance see AskRegs Q&A, How Do We Treat Combat Pay and Special Combat Pay?

Combat pay of any kind is only included in need analysis if it is taxable and included in the adjusted gross income (AGI) of a tax filer. It is not income earned from work. Untaxed combat pay of any kind is not included in need analysis, is not part of the student aid index (SAI) calculation, and is not included as other financial assistance (OFA) when packaging the student. Also, starting with the 2024-25 award year, under the FAFSA Simplification Act, combat pay is no longer excludable income (formerly Additional Financial Information on the FAFSA).

According to guidance under "Combat pay or special combat pay" in the Application and Verification Guide (AVG) volume of the FSA Handbook, "Enter only the portion that was included in AGI. This should be zero for enlisted persons and warrant officers (including commissioned warrant officers) because their combat pay is entirely nontaxable. For commissioned officers generally, combat pay in excess of the highest enlisted person’s pay (plus imminent danger/hostile fire pay) is taxable. To determine the taxable amount, find the total combat pay from the serviceperson’s leave and earnings statements and subtract the untaxed portion, which is reported in box 12 of the W-2 form with code Q. See IRS Publication 3, Armed Forces’ Tax Guide, for more information."

If the servicemember (or school) is unclear about what portion of his, her, or their income is taxable combat pay, the servicemember would need to obtain additional documentation from the commanding officer/military command, or designated military pay official.

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