Earned Income Tax Credit: What Military Families Should Know
By Laura Roler, Military Saves Associate, AFC® Candidate, FINRA Military Spouse Fellow
Many people find themselves heading into tax season with dread. The numbers, the paperwork, the possibility that you could owe MORE money can be a headache, and you may find yourself wondering how the hassle could be worth it. However, taking some extra time to investigate your tax options could pay off in the short- and long-term. Read on to find out if the Earned Income Tax Credit is a benefit you can use.
What is the EITC
The federal Earned Income Tax Credit (EITC) is a refundable tax credit for low- to moderate-income working individuals, couples, and families. A tax credit is a sum that is subtracted from the total amount a taxpayer owes to the government. It is considered refundable because if a taxpayer owes less than the amount they are qualified to receive as a credit, he or she will receive a refund from the government. Discover other available tax credits and deductions.
Why it is useful for military families
Don't leave money on the table! A tax refund can go a long way in beginning an emergency fund, paying off debt, preparing for transition or retirement, or whatever your savings goal is. Take advantage of this annual opportunity to set aside at least part of your refund to help build and secure your future!
Once you've decided on your goal, make a plan to automatically save your refund. Using IRS Form 8888, you can request direct deposit of your refund in up to three different bank accounts. You may also use this form to direct funds toward the purchase of marketable securities, savings bonds, or a Roth or SEP-IRA.
Do you qualify?
Your eligibility and amount of credit is based on income, marital status, and the number of qualifying children you may have. Click here to learn more about qualifying for EITC.
Military members are not required to include nontaxable military pay such as BAH, BAS, or combat pay as earned income for EITC. It is worth noting that choosing to including combat pay as earned income could result in a lower amount of tax owed, or a larger refund. Check the numbers and see what works best for your family. Read more on special EITC rules for the military.
If you've been ineligible for EITC in the past, there is still a possibility that you might qualify for this year or in the future. Income limits were increased for tax year 2014, and you may find that your circumstances have changed. You can use IRS Form 8862 to claim EITC after a disallowance.
Take the time to make this tax season work for you. Set a goal. Make a plan. Save automatically.
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- Category: Blog
- Published: 29 January 2015