US Military Personnel Stationed Abroad: Tax Rules

US military members stationed abroad generally cannot use the Foreign Earned Income Exclusion for their military pay, because the IRS considers their tax home to be the US for as long as they are on US military orders rather than having established a foreign tax home by choice. The FEIE is designed for civilian workers who establish a tax home in a foreign country, and military personnel stationed abroad under orders typically do not meet that requirement. Military members serving in designated combat zones receive a much more targeted benefit: combat zone pay is fully excluded from federal income tax, which is separate from and generally more valuable than the FEIE for those who qualify. Active duty military members also receive an automatic 180-day extension after leaving a combat zone to file their tax returns and make retirement account contributions. State tax obligations for military personnel are governed by the Servicemembers Civil Relief Act (SCRA), which lets active duty members maintain their legal residence in their home state regardless of where they are stationed, a benefit that is especially valuable for those from states with no income tax.