NH Earned Income Tax Credit

Members of the military assigned overseas may wonder about their eligibility for the EITC. Military personnel can claim the EITC whether they live in the United States or overseas. The IRS considers an individual assigned to an overseas tour of duty to be temporarily absent from the U.S. due to a special circumstance. The length of time the person is absent is treated as though he or she was in the U.S., as long as the individual plans to return to his or her main home in the U.S. at the end of the military assignment. Therefore, military personnel who live with qualifying children while stationed on active duty outside the U.S. can be eligible for the EITC. Even if their qualifying children remain in the U.S., the children may be claimed for the EITC. Military couples living apart due to a military assignment must still file a joint return to receive the EITC. An individual in the military under age 19 may be claimed as a qualifying child for the EITC. If such an individual is temporarily absent due to an overseas military assignment, he or she still may be considered a qualifying child as long as he or she intends to return home at the end of the military assignment.

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Combat pay.

Military pay received in a combat zone is non-taxable earned income, but it is treated differently than other forms of non-taxable earned income for EITC and Child Tax Credit (CTC) purposes. Beginning in 2004, military personnel may choose to count combat pay when calculating their eligibility for the EITC. Under previous rules, such income was not counted for the EITC. In 2004, Congress passed legislation to permit military personnel to count combat pay for the EITC if it is an advantage. For example, adding combat pay to a family’s other earnings might raise the family’s total income above EITC eligibility levels, or the added income might reduce the amount of the EITC. Under these circumstances a family would not want to count the combat pay. But in families with little or no other income, counting combat pay is likely to result in a larger EITC. The changes in treatment of combat pay also affect figuring eligibility for the CTC. It is now required that combat pay be counted as income for the CTC. The CTC is calculated differently than the EITC. Counting combat pay will enable more military families to qualify for the CTC and to not lose this benefit due to a deployment to a combat zone. Non-taxable military allowances for housing and subsistence — including meals and lodging furnished in-kind to personnel residing on military bases — are not considered earned income for EITC purposes. Such pay and allowances are indicated on W-2 forms, but are not added to regular wage income to calculate eligibility for the EITC. Veterans’ benefits and military retirement pay are not considered earned income. For further information on EITC rules for military personnel, see IRS Publication 3“Tax Information for Military Personnel (Including Reservists Called to Active Duty).

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