Legislative and Policy Analysis
Section 70118: Extension of treatment of certain individuals performing services in the Sinai Peninsula and enhancement to include additional areas
Executive Summary
Section 70118 permanently extends combat-zone-equivalent tax treatment for qualifying U.S. Armed Forces members serving in the Sinai Peninsula of Egypt and expands that treatment to qualifying service in Kenya, Mali, Burkina Faso, and Chad.[1] It does this by amending Section 11026 of the Tax Cuts and Jobs Act so that these locations are treated as “qualified hazardous duty areas” when at least one U.S. Armed Forces member is entitled to hostile fire or imminent danger special pay for services performed there.[1]
The practical effect is targeted but meaningful: eligible servicemembers in those locations may receive the same tax treatment available for combat-zone service, including exclusion of qualifying combat pay from gross income, related withholding treatment, special rules for tax filing deadlines, and related benefits for certain death, missing-status, and estate-tax situations.[2] The provision takes effect January 1, 2026.[1]
The fiscal effect is small compared with the broader tax title. The Joint Committee on Taxation estimated Section 70118 would reduce federal revenues by about $1 million per year beginning in fiscal year 2026 and by $11 million over fiscal years 2025 through 2034.[3] The benefit is not delivered through a grant or direct appropriation; it operates as a tax expenditure administered through military payroll systems, IRS tax administration, Treasury revenue collections, and congressional revenue-estimating processes.
What Section 70118 Actually Does
Section 70118 makes two core changes.
First, it makes permanent the prior statutory treatment of the Sinai Peninsula of Egypt as a qualified hazardous duty area for specified Internal Revenue Code purposes.[1] Under prior law, the Sinai treatment was tied to an “applicable period,” meaning it was temporary. Section 70118 removes that temporary limitation.[1]
Second, it expands the list of qualified hazardous duty areas to include Kenya, Mali, Burkina Faso, and Chad, in addition to the Sinai Peninsula of Egypt.[1] The designation applies only during periods when any U.S. Armed Forces member is entitled to special pay under 37 U.S.C. 310 for hostile fire or imminent danger duty in that location.[1]
| Affected location or benefit stream | Amount | What the financial benefit supports |
|---|---|---|
| Sinai Peninsula of Egypt | Variable by servicemember tax profile | Permanent combat-zone-equivalent tax treatment for qualifying service in a statutory qualified hazardous duty area. |
| Kenya | Variable by servicemember tax profile | Combat-zone-equivalent tax treatment when the statutory hostile-fire or imminent-danger-pay condition is satisfied. |
| Mali | Variable by servicemember tax profile | Combat-zone-equivalent tax treatment when the statutory hostile-fire or imminent-danger-pay condition is satisfied. |
| Burkina Faso | Variable by servicemember tax profile | Combat-zone-equivalent tax treatment when the statutory hostile-fire or imminent-danger-pay condition is satisfied. |
| Chad | Variable by servicemember tax profile | Combat-zone-equivalent tax treatment when the statutory hostile-fire or imminent-danger-pay condition is satisfied. |
| Federal revenue effect | $11 million revenue reduction over fiscal years 2025 through 2034 | Foregone federal receipts from extending and expanding the combat-zone-equivalent tax rules. |
The affected tax provisions include Internal Revenue Code rules concerning surviving-spouse filing status, exclusion of certain combat pay, income taxes of servicemembers who die in combat-zone-related circumstances, estate tax rules for combat-zone-related deaths, wage withholding treatment, communications excise tax treatment, joint returns involving missing-status individuals, and postponed tax deadlines for individuals serving in combat zones.[2]
The tax benefit depends on eligibility. IRS guidance explains that combat-zone tax benefits can apply to service in a statutorily designated qualified hazardous duty area when the servicemember receives hostile fire or imminent danger special pay as certified by the Department of Defense.[4] Department of Defense pay guidance states that hostile fire and imminent danger pay are generally payable at up to $225 per month, with imminent danger pay calculated at $7.50 per day up to the monthly maximum.[5]
Legislative Mechanism
Section 70118 amends Section 11026 of Public Law 115-97, the Tax Cuts and Jobs Act.[1] The section does not create a new chapter of the Internal Revenue Code. Instead, it modifies a statutory note connected to 26 U.S.C. 112, which is the Internal Revenue Code provision governing exclusion of certain combat-zone compensation.[2]
The mechanism is indirect but powerful. It treats listed qualified hazardous duty areas “in the same manner as if” they were combat zones for specified tax purposes.[2] That means the tax code does not need a separate rule for each benefit. Once the qualified hazardous duty area condition is met, existing combat-zone tax rules apply through cross-reference.
The section also removes prior subsections that had limited the Sinai treatment to a temporary period.[1] That conforming amendment matters because it changes the baseline from a time-limited exception to an ongoing statutory designation, subject to the hostile-fire or imminent-danger-pay condition.
In operational terms, the legal trigger has three parts:
- The servicemember performs services in one of the listed locations.
- At least one U.S. Armed Forces member is entitled to hostile fire or imminent danger special pay for services performed in that location.
- The individual satisfies the tax-law and military-pay eligibility requirements for combat-zone-equivalent treatment.[1]
Expenditure Tracking and Reporting Protocol
Section 70118 creates a federal financial flow through reduced tax receipts rather than a direct spending account. The benefit is likely to be tracked through military pay records, Defense Finance and Accounting Service payroll and tax reporting, IRS return processing, Treasury receipt data, Joint Committee on Taxation estimates, and CBO budget baselines. Public visibility is likely to be aggregated rather than clear at the individual section level because the provision affects taxable wages, withholding, refunds, and revenue estimates rather than a stand-alone grant or appropriation.
The relevant administrative chain is likely to include:
- Department of Defense determination or certification of hostile fire or imminent danger pay eligibility;
- service-level personnel and finance offices documenting qualifying service;
- DFAS or equivalent payroll systems excluding eligible pay from taxable wages and issuing corrected wage statements when needed;
- IRS administration through Forms W-2, W-2c, tax returns, refund claims, and combat-zone deadline rules;
- Treasury and IRS receipt reporting;
- JCT and CBO revenue-estimating and budget-effect reporting.
flowchart TD
A[Section 70118] --> B[Listed duty areas]
B --> C[Defense pay eligibility]
C --> D[Military payroll records]
D --> E[Taxable wages adjusted]
E --> F[IRS return processing]
F --> G[Treasury receipts]
F --> H[Refund claims]
G --> I[JCT estimates]
G --> J[CBO baseline]
D --> K[DFAS wage statements]
K --> F
I --> L[Congressional oversight]
J --> L
F --> M[Public visibility aggregated]
Because this is a tax provision, USAspending.gov will generally not show the benefit as a separate award or payment stream. The clearest public fiscal source is the JCT revenue estimate, which scored the provision as a $11 million revenue reduction over fiscal years 2025 through 2034.[3] IRS and Treasury data may reflect the broader effects in aggregate tax collections or tax expenditure reporting, but the section-specific amount may be difficult to isolate publicly after enactment.
DFAS guidance for the earlier Sinai treatment illustrates the administrative model: qualifying service can require finance-office substantiation, payroll correction, and issuance of Form W-2c when taxable wages need to be adjusted.[6] For Section 70118 going forward, routine payroll coding should reduce the need for retroactive correction when duty locations and special-pay eligibility are correctly captured at the time of service.
Day-to-Day Government Process Changes
For servicemembers and military finance offices, Section 70118 changes the day-to-day process by making the Sinai treatment permanent and adding four African countries to the qualified hazardous duty area framework. Instead of treating the Sinai as an expiring special case, payroll and tax administrators must maintain it as an ongoing statutory location subject to the hostile-fire or imminent-danger-pay condition.[1]
For the Department of Defense, the key operational issue is accurate location and entitlement coding. The tax benefit depends on special pay under 37 U.S.C. 310, so the military-pay system must correctly identify duty in the relevant location, the qualifying period, and whether hostile fire or imminent danger pay applies.[5]
For DFAS and service finance offices, the provision increases the importance of accurate Leave and Earnings Statement coding, Form W-2 wage treatment, and any Form W-2c corrections. Servicemembers deployed to or assigned in covered locations may need finance-office documentation if their tax records do not properly reflect qualifying service.[6]
For the IRS, the provision affects return processing, amended-return claims, filing-deadline postponements, and taxpayer assistance for servicemembers. IRS guidance already explains that combat-zone tax benefits can apply to statutory qualified hazardous duty areas when the required military-pay condition is satisfied.[4] Section 70118 expands the set of locations that can trigger that pathway.
Effects on Consumers
The main “consumers” affected are servicemembers and military families rather than ordinary civilian purchasers.
For eligible servicemembers, the provision can increase after-tax income by excluding qualifying combat-zone compensation from gross income and by supporting related deadline and filing protections.[2] The value of the benefit depends on pay grade, length of qualifying service, type of pay, filing status, other income, and whether the servicemember is enlisted or an officer.
For families, the provision may reduce tax filing stress during deployment and may preserve tax benefits in severe circumstances involving death, missing status, or delayed filing obligations.[2] It can also improve financial predictability because the Sinai treatment no longer faces a scheduled expiration after 2025.
For taxpayers generally, the effect is a small reduction in federal receipts. JCT estimated the provision at about $11 million over fiscal years 2025 through 2034, which is very small relative to the overall fiscal scale of Public Law 119-21.[3] The cost is broadly borne through the federal revenue system rather than through a direct fee, premium, or consumer price.
Effects on Businesses
Section 70118 has limited direct business impact. It does not create a business deduction, credit, grant, contract authority, procurement preference, or regulatory exemption.
The most direct business-adjacent effects are administrative. Tax-preparation firms, payroll-support contractors, military legal assistance offices, and financial advisers serving military households may need to update guidance for eligible service in the Sinai Peninsula, Kenya, Mali, Burkina Faso, and Chad. Software providers may also need to ensure that military tax modules and combat-zone prompts reflect the updated statutory treatment.
Businesses employing reservists or National Guard members may experience indirect workforce effects when employees are deployed to covered locations, but Section 70118 itself does not change civilian employer obligations under military leave or reemployment law. Its tax effects are centered on federal military compensation and individual tax administration.
Defense contractors operating in the same regions do not receive the combat-zone-equivalent exclusion merely because they are civilians or contractors. The statutory language is tied to individuals performing services as members of the U.S. Armed Forces and to entitlement to hostile fire or imminent danger special pay.[1]
Environmental and Climate Impact
The environmental and climate impact is minimal.
Section 70118 is a military tax-benefit provision. It does not authorize construction, weapons procurement, fossil-fuel leasing, mineral extraction, transportation infrastructure, land transfers, energy subsidies, environmental review changes, or pollution-control rescissions. Its immediate legal effect is to extend and expand tax treatment for qualifying servicemembers in specified hazardous duty locations.
The provision could have indirect effects only if tax treatment modestly affects deployment incentives, retention, or administrative support for U.S. military presence in the listed regions. Even then, the connection to environmental outcomes is attenuated. The section does not itself increase troop levels, authorize operations, expand base infrastructure, waive environmental safeguards, or change overseas environmental compliance rules.
Existing environmental safeguards are not weakened by this section. Any environmental impacts from U.S. operations in the listed countries would arise from separate defense, diplomatic, basing, logistics, or operational decisions rather than from the tax classification created here.
Environmental justice and local community effects are similarly indirect. Communities near military facilities or operations in the listed areas could be affected by broader U.S. military activity, but Section 70118 does not itself approve or fund those activities. The more direct equity issue is tax fairness for servicemembers exposed to comparable danger in locations that had not previously received the same statutory treatment.
Impact Summary
Section 70118 is a narrow military tax provision with a clear beneficiary group: U.S. Armed Forces members serving in specified hazardous duty areas who satisfy the hostile-fire or imminent-danger-pay condition. It permanently preserves Sinai Peninsula treatment and extends similar combat-zone-equivalent tax treatment to Kenya, Mali, Burkina Faso, and Chad.[1]
The federal fiscal impact is small but real: JCT estimated a revenue reduction of about $11 million over fiscal years 2025 through 2034.[3] The benefit is delivered through reduced taxable income, payroll withholding adjustments, IRS processing, and related combat-zone tax rules rather than through direct federal spending.
Consumers are affected mainly through military households, which may see lower tax liability, better filing protections, and clearer treatment during qualifying deployments. Businesses are affected only indirectly, mostly through tax preparation, payroll-support, and military-family advisory services.
The environmental and climate effect is minimal because the section changes tax treatment for military service rather than authorizing operations, construction, extraction, emissions, or environmental review changes. Any environmental or local-community effects from U.S. activities in the listed regions would depend on separate military and diplomatic decisions, not this tax provision.
Key References and Sourcing
| Source | Relevance |
|---|---|
| Public Law 119-21, Section 70118 | Primary enacted statutory text showing the permanent Sinai treatment, addition of Kenya, Mali, Burkina Faso, and Chad, and January 1, 2026 effective date. |
| 26 U.S.C. 112, U.S. Code notes | Shows how qualified hazardous duty areas are treated like combat zones for specified Internal Revenue Code provisions. |
| Joint Committee on Taxation, JCX-35-25 | Provides the revenue estimate for the Senate-passed Title VII tax provisions, including Section 70118. |
| IRS, Combat Zones | Explains IRS combat-zone tax-benefit eligibility, including statutorily designated qualified hazardous duty areas and Department of Defense certification. |
| Department of Defense Military Compensation, Hostile Fire and Imminent Danger Pay | Provides current hostile fire and imminent danger pay rates and operational pay descriptions. |
| Defense Finance and Accounting Service, Combat Zone Tax Exclusion for Sinai Peninsula | Illustrates payroll and wage-statement administration for qualified Sinai service. |
| CRS, Tax Provisions in P.L. 119-21 | Secondary congressional research summary describing Section 70118, affected Code provisions, and application beginning in 2026. |
[1] GovInfo, “Public Law 119-21, Section 70118,” enacted statutory text for the qualified hazardous duty area amendments and effective date, https://www.govinfo.gov/content/pkg/PLAW-119publ21/html/PLAW-119publ21.htm.
[2] Office of the Law Revision Counsel, “26 U.S.C. 112: Certain combat zone compensation of members of the Armed Forces,” U.S. Code notes describing qualified hazardous duty area treatment for specified Internal Revenue Code provisions, https://uscode.house.gov/view.xhtml?edition=prelim&num=0&req=granuleid%3AUSC-prelim-title26-section112.
[3] Joint Committee on Taxation, “JCX-35-25: Estimated Revenue Effects Relative To The Present Law Baseline Of The Tax Provisions In Title VII – Finance,” revenue estimate for Section 70118, https://www.jct.gov/publications/2025/jcx-35-25/.
[4] Internal Revenue Service, “Combat Zones,” eligibility rules for combat-zone tax benefits and qualified hazardous duty areas, https://www.irs.gov/individuals/military/combat-zones.
[5] Department of Defense Military Compensation, “Hostile Fire/Imminent Danger Pay,” pay rates and special-pay mechanics, https://militarypay.defense.gov/Pay/Special-and-Incentive-Pays/HFP_IDP/.
[6] Defense Finance and Accounting Service, “Combat Zone Tax Exclusion for Sinai, Egypt,” payroll and corrected wage-statement administration for Sinai service, https://www.dfas.mil/MilitaryMembers/taxinfo/CZTE-for-Sinai-Peninsula/.
[7] Congressional Research Service, “Tax Provisions in P.L. 119-21, the FY2025 Reconciliation Law,” summary of Section 70118 and affected Internal Revenue Code provisions, https://www.everycrsreport.com/reports/R48611.html.
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