The purpose of the nontaxable combat pay election is to have your non-taxable combat pay considered in determining your eligibility for the stimulus rebates.
If you were stationed in a hostile-fire pay zone all year and are either enlisted or a commissioned office below about the paygrade of O-4, all of your base pay and allowances are non-taxable. That would result in a tax liability of $0 and would unfortunately exclude you from the stimulus plan rebates. If you show your non-taxable combat pay on the special Form 1040-A return then it will be used to determine if you earned at least $3,000 and would therefore make you eligible for the rebate.
Here's an IRS link that will explain it all: http://www.irs.gov/newsroom/article/0,,id=180339,00.html
Please note that claiming this will NOT cause you to pay taxes on your excluded combat pay! It will ONLY allow you to report it so that you will qualify for the rebate!
