You make the callBy: National Association of Tax Professionals
September 1, 2022

Question: Mark is serving in the military on active duty in a combat zone. He has received $50,000 of qualified nontaxable combat pay and plans to contribute to an individual retirement account (IRA). Although the combat pay is nontaxable, must he include it as compensation when determining the compensation-based limitations of his contribution to the IRA?

Answer: Yes. Although qualified combat pay is excluded from income under §112, for purposes of determining the compensation-based limit on contributions to an IRA under §219(b)(1)(B), the nontaxable combat pay is included in compensation. Therefore, a military taxpayer’s IRA contribution is the lesser of the dollar limit for an IRA deduction for the tax year, or the amount of combat pay excluded from income under §112 plus taxable compensation for the tax year.

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penAbout National Association of Tax Professionals

The National Association of Tax Professionals (NATP) is the largest association dedicated to equipping tax professionals with the resources, connections and education they need to provide the highest level of service to their clients. NATP is comprised of over 23,000 leading tax professionals who believe in a superior standard of ethics and exemplify professional excellence. Members rely on NATP to deliver professional connections, content expertise and advocacy that provides them with the support they need to best serve their clients. The organization welcomes all tax professionals in their quest to continually meet the needs of the public, no matter where they are in their careers.

The NATP headquarters is located in Appleton, WI. To learn more, visit www.natptax.com.

Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing.

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