Discussion:Military combat pay, spouses education expenses question

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Discussion Forum Index --> Tax Questions --> Military combat pay, spouses education expenses question

Mblatour (talk|edits) said:

6 February 2007
I hope I can explain this question clearly enough. I really want to come up with a solution because I am doing this for my baby sister who's husband has been in Iraq for the past 18 months and it would cheer her up a bit being as he was just extended. Here's the scenario.

My sister had income on W-2 of $9108 for 2006. Her husband had taxable income of $5370 (his combat wages under Q. in box 12 was $30,091). My sister is currently attending our city's most expensive college for nursing. She paid (in student loans) $28,234 for her tuition for 2006.

Their AGI after a $837 student loan interest deduction works out to be $13,642. Now take off the standard of $10,300, and $6600 for exemptions, and their income taxable income is at ZERO.

The Federal Income Tax withheld from their W-2's was $952. Their refund (with the $40 phone credit) works out to be $992 for Federal and $535 for State.

I spent a ton of time looking to see if their was any way that they could benefit from the large amount in schooling expenses. What I found was that they gain no benefit from the Life Learn Credit or Tuition & Fees Deduction because the information regarding these two items states that the dedution or the credit for school "can reduce your tax to zero, but if the credit is more than your tax the excess will not be refunded to you".

I also looked into the option of using the combat pay income for purposes of EIC, but that didn't gain them anything, they were over the income limit.

I just got off the phone with my sis and she is just crushed that she gains no money from all of her schooling expenses. She thought they'd send a check for the credit, despite her income being reduced to zero.

Is there anything anyone can think of that may help them out more? Despite the fact that her husband's income wasn't taxed, he'd have made more money being home (he's a reservist) and working at his prision job, paying taxes, then he's made being over in Iraq working 15+ hour days and getting paid tax free. I will keep my opinion out of this and please be kind with yours, this is a touchy subject for many.


Taxea (talk|edits) said:

7 February 2007
Looks like you did all the research and came up with the appropriate answer. This is not a refundable credit and she only gets to take the amount up to where it zero's out her taxes. sorry taxea

Deback (talk|edits) said:

February 7, 2007
Agree with Taxea.

Jctmstx (talk|edits) said:

7 February 2007
I have been researching this for my nephew. What has been noted above seems to be correct. However, in the state of PA active duty pay is not taxable as long as they are posted out of state. They usually have a different address to which the state return is sent and you need to attach a copy of there orders and note how much is not taxable. Hope this helps. From a veteran.

Taxea (talk|edits) said:

8 February 2007
The combat pay is not taxable in most states and on the federal return. Either way if the return zero's out the left over credit is not refunded. taxea

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