Combat Zone pay for government contractor.
Im familiar with form 2555 foreign income exclusion. But this taxpayer is a private contractor for the military, working in a combat zone. Taxpayer received a letter from their employer stating they were in a combat zone and qualify for "combat pay" exclusion. We file a schedule C for the client and I have searched high and low on how to report combat zone pay exclusion. Form 2555 doesn't apply in this situation due to not meeting time overseas. From what I have read on the IRS site, one just writes "Combat Zone Pay" on the top of the 1040 and doesn't claim the pay. But with combat pay one still pays SS tax and Medicare tax. Plus we have no way of writing "Combat Pay Exclusion" on top of the 1040 and efiling ! 😀 Has to be a way in Proseries to "check a box" to show it was combat pay ? Or do I just write on other expenses on schedule "Combat Pay Exclusion" and deduct the pay ? But then Self employment tax is not paid. What's your take on how to report it ?
