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7 credits all troops should know

There are a number of credits that can make a nice dent in the amount of taxes payable, from the Earned Income Credit to credits for children and education-related expenses.

Since the amount of the credit is usually phased out after a certain level of adjusted gross income, having nontaxed combat-zone pay can make you eligible to take some of these credits.

Here is a brief look at credits that service members should consider at tax time.

1 - Earned Income Credit. This is a refundable credit paid to lower-income individuals and families. Refundable means that you get the credit amount even if your taxes are zero.

Single or married taxpayers who do not have children, are older than age 24 and have an adjusted gross income that is less than $12,120 (single) or $14,120 (married) and investment income less than $2,800 can qualify for a credit of $412.

The maximum credit for single or married taxpayers with one qualifying child is $2,747. For those with two or more qualifying children, the maximum credit is $4,536.

You must have earned taxable income to qualify for the credit.

For military members who have little or no taxable income due to combat-zone tax exclusions, nontaxed combat-zone pay can be included if it will increase the amount of credit that would be paid without counting the nontaxed combat pay.

This is a valuable credit, but it is complicated. The IRS will help you with the calculation, and I suggest that you take advantage of their help if you do not have a tax preparer and believe you are eligible for the credit. (More information is available online at www.irs.gov if you search for “EIC.”)

2 - Retirement Savings Contribution Credit. The maximum allowable credit is equal to 50 percent of the first $2,000 contributed to a retirement plan such as an IRA or 401(k). The credit phases out at higher income levels, but if you have nontaxed combat pay, you should check it out. However, if you have zero tax, you will not get a credit payment. (See www.air forcetimes.com/money for tax-planning ideas that use this credit.)

3 - Child Tax Credit. Up to $1,000 per child. See Form 1040 and Publication 972, “Child Tax Credit.” Income limitations apply.

4 - Additional Child Tax Credit. Up to $1,000 per child. See Form 8812 and Publication 972.

5 - Child and Dependent Care Credit. This credit is based on child care expenses when both spouses work. The maximum credit equals 35 percent of $3,000 in child care expenses each for one or two children. The lowest credit (based on parental income) is 20 percent. Use Form 2441.

6 - Residential energy credits. The Residential Energy Efficient Property Credit and Non-Business Energy Property Credit can be used for certain residential property expenditures on energy-efficient additions and Energy Star appliance purchases. There is a maximum lifetime credit of $500 for certain appliances and 30 percent of $2,000 for solar heating and other additions. Use Form 5695.

7 - Education credits. There are two to be aware of — the Hope Credit and Lifetime Learning Credit. Maximum credits are $1,500 for Hope Credit and 20 percent of the first $10,000 of education expenses for the Lifetime Credit. There are income limitations for these credits, so nontaxed combat pay can provide a real benefit if you have a spouse or children in college. Use Form 8863.