Earned Income Credit with Military Retirement Pay - Does it Count?

Thanks for explaining! So to make sure I understand - the military retirement isn't counted as "earned income" for qualifying for the EIC (which would be good), but it does count toward our overall income limits (which is bad)? If that's the case, then maybe our neighbors are still over the income limit with just their W-2 earnings, but they're claiming the credit anyway? Or maybe their civilian job pays less than ours?

That's exactly right - military retirement isn't counted as "earned income" when determining if you have enough earned income to qualify for the EIC, but it is included in your adjusted gross income (AGI) which can push you over the income limits for claiming the credit. Your neighbors might have a lower civilian income that keeps them under the threshold, or they might be claiming the credit incorrectly. It's also possible they have other deductions that lower their AGI enough to qualify. Without knowing their exact situation, it's hard to say for sure.

How accurate is this tool? I've used TurboTax for years and they always seem confused about military-specific tax situations. Does it handle other military tax issues like combat pay exclusion and moving expense deductions?

Is it just for military folks or can anyone use it? My husband's a firefighter with a pension and I've always been confused about how that impacts our taxes and credits.

The tool is extremely accurate - it actually uses the same tax logic as professional software but explains things in plain English. It handled my combat pay exclusion perfectly and explained how it affects different credits differently. It's definitely not just for military folks. It works for anyone with tax questions. It would definitely help with firefighter pension questions too. The nice thing is it explains how different types of income affect different tax credits and deductions, so you get the "why" not just the numbers.

Wait, so this service somehow gets you through the IRS phone system faster? How does that even work? I've tried calling them before and just gave up after being on hold for what felt like forever.

Sounds like a scam. Nobody can magically get you through to the IRS faster. They probably just connect you to some fake "agent" who gives generic advice. No way this actually works with the real IRS.

It actually uses a combination of technology and their knowledge of IRS phone systems to secure your place in line. They call and navigate the initial phone tree, then when they're about to be connected to an agent, they call you and connect you directly. It's completely legitimate and connects you to actual IRS agents. It's not magic - they're essentially waiting in the phone queue for you, using their system to monitor multiple lines, and then bringing you in only when an agent is about to be available. They don't provide tax advice themselves - they just make the connection to the real IRS faster.

That's really helpful! We definitely claim the Child Tax Credit. I was just worried we might be missing out on additional credits. Sounds like we're probably doing things correctly after all, and our neighbors might be the ones making a mistake. Do you know if there are any other credits we should be looking at with our situation?

You're definitely on the right track with the Child Tax Credit! Other credits to consider with your situation would be the Child and Dependent Care Credit if you pay for childcare while you work, and education credits like the American Opportunity Credit or Lifetime Learning Credit if any of your children are in college or if you or your spouse are pursuing higher education. Military families sometimes overlook the Saver's Credit (for retirement contributions) if your AGI falls under certain thresholds. While your combined income might be too high, it's worth checking if you file separately (though that has other implications you'd need to consider carefully).

Does anyone know if there's a comprehensive list somewhere of which states don't tax military retirement? We're thinking of moving when my husband retires next year and tax benefits could definitely influence our decision.

Yes! There are quite a few states that don't tax military retirement income. Off the top of my head, states like Florida, Texas, Nevada, Washington, and Tennessee have no state income tax at all, so military retirement is automatically tax-free there. Then there are states that specifically exempt military retirement - like Alabama, Hawaii, Illinois, Kansas, Louisiana, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, New Jersey, New York, Ohio, Pennsylvania, and Wisconsin (though some have age or amount restrictions). I'd recommend checking with a tax professional or doing research specific to the states you're considering, since the rules can change and some states have partial exemptions or income limits. The Military Officers Association of America (MOAA) usually has updated guides on military-friendly tax states that might be helpful for your planning!