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Military personnel can't deduct combat pay for IRA
By Mary M. Shaffrey
Journal Washington Bureau

Even time spent in a combat zone doesn't spare soldiers, sailors or Marines from the long reach of the IRS.

That could change, though, if a bill filed yesterday by U.S. Rep. Virginia Foxx, R-5th, passes Congress. Foxx's first piece of legislation is to change IRS regulations that preclude military personnel serving in combat zones from putting tax-deductible parts of their salary in individual retirement arrangements.

To put money in an IRA, it must come from "taxable compensation, such as wages, salaries, commissions, tips, bonuses, or net income from self-employment," according to the IRS web site.

Combat pay, in addition to regular base pay for military personnel serving in war zones, is considered nontaxable income. Foxx's bill would count hazardous-duty pay - all money earned while serving in a war zone- as taxable income for the purpose of IRA contributions without actually taxing it.

"Soldiers ought to be rewarded for wanting to be responsible," Foxx said.

Foxx got the idea for the legislation after a constituent soldier brought it to her attention.

U.S. Army Spc. Michael Hensley of Clemmons spent most of 2004 stationed at Camp Steicher in Tikrit, Iraq. He did not know that he couldn't deduct contributions to his IRA until he went to file his taxes.

"When he was filling out his taxes on Turbo Tax, a message came up and said he could not deduct the full amount," said his father Robert Hensley, also of Clemmons.

Spc. Hensley is now stationed in Germany and was not immediately available to comment.

Father and son have done their taxes together for years, so Robert Hensley thought the tax-program message was wrong. He contacted Turbo Tax, as well as the IRS, and was told the same thing.

"It just didn't seem right," said Robert Hensley.

The family wrote Foxx in early March and asked for help.

"The best ideas usually come from constituents because the government is doing something that needs to be changed and they bring it to our attention," Foxx said.

The issue of combat pay and IRA contributions is an old one, said Lee Lange, the deputy director of government relations for the Military Officers Association of America.

But it only recently started to get some attention. Lange said that his organization supports Foxx's bill because the confusion over military pay regulations can punish soldiers in war zones unnecessarily.

Foxx's proposal "prevents inadvertent penalty to members who want to contribute to IRAs, but can't under current IRS rules," said Lange.

U.S. Sen. Kent Conrad, D-N.D., has proposed similar legislation. His bill, introduced last month, has been sent to the Senate Finance Committee for consideration.

Amy Auth, a spokeswoman for Foxx, said that the congresswoman was not aware of Conrad's bill.

"We were not aware at all that that bill was in existence. Our bill was because of a constituent letter. But we will work with anyone who has a fiscally responsible plan to help our men and women in uniform," said Auth.

Foxx's bill, named the Heroes Earned Retirement Opportunities Act (H.E.R.O Act), has been sent to the House Ways and Means Committee. If it passes, it will apply only to income earned after Dec. 31, 2004.