Tax Change Means More Service Members Qualify for Earned Income Credit
By Jim Garamone
American Forces Press Service
WASHINGTON, April 26, 2002 Tax changes affecting reportable income for this year will mean more service members qualify for the earned income tax credit, said Defense Department officials.
Congress has changed the way income is figured and the way the credit is paid. Uniformed military members will be the chief beneficiaries, according to Army Lt. Col. Tom Emswiler, executive director of the Armed Forces Tax Council.
In the past, he said, the basic allowances for housing and subsistence and pay excluded from income due to combat zone service was included in calculating whether a person qualified for the earned income tax credit. The credit was "paid" with the filing of one's annual income tax return.
"This year Congress is only going to make you include the money in your taxable income," Emswiler said. The allowances and tax exclusion won't count as earned income when computing the credit, he noted. In addition, Thrift Savings Program contributions also will be excluded.
"What this means is that more members are going to qualify for earned income credit this year than ever did previously," he said.
The earned income credit is for employees who don't make a lot of money. Income limits this year are $29,201 (30,201 if married filing jointly) if you have one qualifying child; $33,178 (34,178 if married filing jointly) if you have more than one qualifying child and $11,060 ($12,060 if married filing jointly) if you do not have a qualifying child. Other rules also apply.
Refundable credits, like the earned income tax credit, are worth more than deductions because they reduce income taxes dollar for dollar and the government pays the taxpayer any credit remaining after the tax due falls to zero. For most persons claiming the credit, deductions would reduce taxes by 28 cents or less on the dollar and then only to zero.
Instead of waiting for a lump-sum annual credit payment, taxpayers can request advance monthly installments now if they expect both their annual earned income and adjusted gross income to be less than $29,201 ($30,201 if married filing jointly); they have or expect to have at least one qualifying child; and they expect to qualify for the credit in tax year 2002.
Service members with questions about the credit should visit their installation Defense Finance and Accounting Service office or legal assistance office. The Internal Revenue Service Web site, www.irs.gov, can provide full details, forms and guidance. Click on "Earned Income Credit," Publication 596; or "Your Income Tax," IRS Publication 17; or enter "Earned Income Credit" into the site's search engine box.
Members who believe they qualify for advance monthly credit payments this year should fill out IRS Form W-5, available at installation DFAS offices or on the IRS Web site, Emswiler said.