The federal government provides tax relief to qualifying individuals in the form of tax credits. Tax credits are valuable because they are dollar-for-dollar reductions of your tax liability. In some cases, they may result in tax refunds.
In general, the rules regarding tax credits are the same for members of the Armed Forces as they are for everyone else. Nevertheless, certain tax credits may be of particular interest to members of the military. The following discussion explains eligibility requirements of the earned income credit (EIC). Also discussed are some eligibility factors as they specifically pertain to service members.
The earned income credit (EIC) is available to certain individuals who work. This credit is refundable–if the amount you claim exceeds your tax liability (even if your liability is zero), you’ll receive payment for the difference. How much you get depends on how much your earned income is and how many children you have. For 2014, the maximum EIC amount is $496 if you have no qualifying child, $3,305 if you have one qualifying child, $5,460 if you have two qualifying children, and $6,143 if you have three or more qualifying children.
Several factors determine your eligibility for the EIC. Generally, you (and your spouse, if applicable) must:
- Have earned income (i.e., income you work for; including wages and net earnings from self employment)
- Have a valid Social Security number
- Have investment income, if any, that does not exceed $3,350 (in 2014)
- Be a U.S. citizen or resident alien all year (or married to one and choosing for tax purposes to be treated as a resident alien for the year)
- Not be a qualifying child of another taxpayer
- Not file as married filing separately
- Not file Form 2555 or 2555-EZ (pertaining to foreign earned income)
- Meet appropriate income qualifications
In addition to the above requirements, you must meet other requirements. The specific requirements that apply depend on whether or not you have a qualifying child.
With Qualifying Child
If you have a child (or children) and wish to claim the EIC as a taxpayer with a qualifying child, your child must have a valid Social Security number and meet all three of the following requirements:
- The child must have lived with you in the United States for more than half the year (temporary absences due to special circumstances are not treated as absences)
- The child must be your son, daughter, stepson, stepdaughter, brother, sister, stepbrother, stepsister, or a descendent of such individuals. A child who is legally adopted by, or lawfully placed for adoption is a qualifying child. A foster child who is placed by an authorized agency, judgment, decree, or other such order is also a qualifying child.
- Generally, the child must be under age 19, under age 24 if a full-time student, or permanently and totally disabled.
Caution: If you file for the EIC as a taxpayer with a qualifying child, you must complete Schedule EIC and attach it to your tax return.
Tip: U.S. military personnel stationed outside the U.S. on extended active duty are considered to live in the U.S. during that duty period for purposes of the EIC. (Extended active duty means that you are called or ordered to duty for an indefinite period or for a period of more than 90 days.)
Without qualifying child
If you don’t have a child who qualifies under the EIC criteria, you may still be eligible for the EIC. In addition to the general EIC eligibility requirements listed above, you (or your spouse if filing a joint return) must:
- Be at least age 25 but under age 65
- Not be eligible to be claimed as a dependent on another taxpayer’s return (regardless of whether the taxpayer actually claims you as a dependent)
- Have your main home in the United States for more than half the year
Tip: Individuals in the Armed Forces who are stationed outside the United States on extended active duty are considered to be living in the United States. If you’re temporarily absent from your home solely on account of military service, you may still be eligible for the EIC if you plan to return to your main home at the end of your assignment.
To be eligible for the EIC, you must fall within certain income guidelines. To qualify for the full amount of the EIC, your earned income and AGI must each be less than:
- $8,110 ($13,540 if married filing jointly), if you don’t have a qualifying child for 2014
- $17,830 ($23,260 if married filing jointly), if you have one or more qualifying children for 2014
EIC Income Restrictions
If your earned income or AGI is above these limits, your EIC eligibility begins to phase out, and is eliminated completely when either amount reaches:
- $14,590 ($20,020 if married filing jointly), if you don’t have a qualifying child for 2014
- $38,511 ($43,941 if married filing jointly), if you have one qualifying child for 2014
- $43,756 ($49,186 if married filing jointly), if you have two qualifying children for 2014
- $46,997 ($52,427 if married filing jointly), if you have three or more qualifying children for 2014
NONTAXABLE COMBAT PAY
You can elect to include your nontaxable combat pay in earned income for the earned income credit. If you make the election, you must include in earned income all nontaxable combat pay you received. If you are filing a joint return and both you and your spouse received nontaxable combat pay, you can each make your own election.
The amount of your nontaxable combat pay should be shown on your Form W-2 in box 12 with code Q. Electing to include nontaxable combat pay in earned income may increase or decrease your EIC.
Figure the credit with and without your nontaxable combat pay before making the election. Whether the election increases or decreases your EIC depends on your total earned income, filing status, and number of qualifying children.
For more information on how AFBN can help you, contact your nearest service center location.