Overview

Enter military wages using screen W2. Select M – Military Wages from the Special tax treatment list.

Combat pay is not taxable and is not included in the taxable amount in box 1 of Form W-2. It is shown separately in box 12. Enter combat pay in box 12 with code Q.

On the MISC screen, in the drop list for Special processing code for active military, select the code that corresponds to the taxpayer's combat area.

Combat Areas

• B – Enduring Freedom

• C – Combat Zone

• D – Desert Storm

• E – Northern Forge

• F – Joint Forge

• G – Joint Guard

• H – Haiti

• I – Iraqi Freedom

• N – Northern Watch

• S – Sinai Peninsula-Egypt

Additional Information

• EF Message 5440 will generate if a Special processing code is not selected.

• If combat pay is entered as code Q in box 12 of the W2 screen, the software includes it in the EIC calculations, if doing so benefits the taxpayer. See Drake Tax - EIC and Combat Pay for details.

• Basic Allowance for Housing (BAH) is excluded from gross income and is not considered earned income for EIC purposes.

• Basic Allowance for Subsistence (BAS) is excluded from the gross income and is not considered earned income for EIC purposes.

For further information regarding military income and how it affects a tax return, see Publication 3.