IRS Tax Tip 2018-12, January 25, 2018
The IRS reminds members of the military and veterans that they may qualify for the earned income tax credit. This credit benefits certain people who work and have earned income that’s less than $53,930.
A tax credit usually means more money in the taxpayer’s pocket. The EITC can reduce the amount of tax someone owes, but it might also result in a refund. Here are some things members of the armed forces should know about this credit. These are all specific to the military:
- Generally, nontaxable pay for members of the armed forces isn’t earned income for the EITC. Examples of nontaxable military pay are
- Combat pay
- Basic allowance for housing
- Basic allowance for subsistence
- A member of the armed forces can elect to have their nontaxable combat pay included in earned income for purposes of the EITC. Doing so may increase or decrease their EITC. The taxpayer can find the amount of their nontaxable combat pay on their Form W-2, in box 12, with code Q. The IRS encourages these taxpayers to calculate their taxes both ways to find out what's best for them.
- Taxpayers who elect to include their combat pay in income must include all nontaxable combat pay they received. They can't choose to include only a part of the nontaxable combat pay in earned income. Couples with two members of the military filing a joint return have a few options when deciding whether to include combat pay in their income:
- Spouse 1 can choose to include all their nontaxable combat pay and spouse 2 can choose zero
- Spouse 1 can choose to include zero amount of your nontaxable combat pay and spouse 2 can choose to include all of it
- They can both choose to include all their nontaxable combat pay
- They can both choose not to include their nontaxable combat pay
- Members of the military on extended active duty outside the U.S. are considered to live in the country during that duty period for purposes of figuring their EITC. Extended active duty means the taxpayer is called to duty for an indefinite period or for a period of more than 90 days. Once they begin serving extended active duty, they’re still considered to have been on extended active duty even if they don't serve more than 90 days.
By law, the IRS cannot issue refunds before mid-February for tax returns that claim the EITC or the additional child tax credit. The law requires the IRS to hold the entire refund — even the portion not associated with the EITC or ACTC. The IRS expects the earliest EITC/ACTC related refunds to be available in taxpayer bank accounts or on debit cards starting Feb. 27, 2018, if these taxpayers choose direct deposit and there are no other issues with their tax return.
- Tax Information for Members of the U.S. Armed Forces
- Disability and EITC
- Publication 596, Earned Income Credit