I'm an E5 and deploying from December to December to a tax free area. I have a wife, two kids and I'm the sole income. I always end up getting a larger refund than I pay into taxes due to earned income credit. I've done the math and without a tax refund, getting hardship duty pay and separation pay I'm coming up about 100 dollars short a month opposed to if I'm staying at my home station.
Am I missing something or will I make less money while being separated from my family for a year?
Am I losing money on my deployment?
byu/ducttape1942 inMilitaryFinance
Posted by ducttape1942
5 Comments
You’re saying you make more money AFTER the government takes their cut?
You are allowed to include your tax-exempt pay in your taxable income if it would benefit you in the EITC.
https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/military-and-clergy-rules-for-the-earned-income-tax-credit
I am really going to need you to break things down for me Barney style here. Because it sounds a lot like you’re saying you somehow bring home less money when it’s not being taxed, which, honestly shouldn’t be possible.
You can count the combat pay for the credits. Software will even run the metrics for you as you input the info.
https://www.freetaxusa.com/answers?faq=136
You’re missing a big point of tax-free and how taxes work in general. I’m going to use some generic numbers that may or may not apply to you, but to help illustrate the point.
Non-deployment
Monthly Base Pay $3000 – $500/mo in taxes
$2500 take home x 12 mo = $30,000
At the end of the year, you have accumulated $6,000 tax “credit” (taxes already paid)
You complete your taxes by April 15th of the following year and determine tax liability is -$3,000 (standard deduction, child credits, earned income, etc)
IRS gives you a refund of $9,000 (somewhat equivalent to $750/mo)
Yearly pay + refund = $39,000
Deployment
Monthly Base Pay $3000
$3000 take home x 12 mo = $36,000
At the end of the year, you have accumulated $0 tax “credit” (taxes already paid)
You complete your taxes by April 15th of the following year and determine tax liability is -$3,000 (standard deduction, child credits, earned income, etc)
IRS gives you a refund of $3,000 (somewhat equivalent to $250/mo)
Yearly pay + refund = $39,000
The difference? You were able to pocket $500 a month through the course of the year to help pay down credit cards, pay for grocery and everyday expenses so you didn’t put them on credit cards, put money away for emergencies, put extra money in an IRA, etc.
Now, are there extra costs that are associated with deployment from a family standpoint? Yes, like extra child care, so your spouse can work or go to an interview or to relax. The family sep pay is supposed to help with that, but depending on your situation, it may not cover the extra costs.