PARSIPPANY, N.J., April 1, 2005 - As part of its month-long "Support Our Troops" effort, Jackson Hewitt Tax Service (NYSE: JTX) outlines key tax laws that can benefit military members this tax season. From special income considerations to retirement accounts and select tax credits, military personnel will be able to claim key credits, deductions and other benefits to which they are entitled, ideally creating a positive effect on their financial bottom line.

 

"Tax laws enacted prior to this tax season have brought a wealth of tax benefits for military personnel," said Mark Steber, Vice President of Tax Resources for Jackson Hewitt Tax Service Inc. "For example, military members can exclude certain income from taxation, such as active duty pay earned while serving in a combat zone, a rule that has benefited military members for a number of years. Now under the new tax laws, combat pay benefits are also valuable when it comes to calculating certain credits, such as the Earned Income Tax Credit (EITC) and the Child Tax Credit, which may result in a larger refund."

 

The Working Families Relief Act and other new tax law changes allow military members to benefit in a variety of ways, including:

 

Generally, military personnel are not taxed on certain income, such as:

In addition, military personnel have many other types of income, including military differential pay, awards, student loans and grants, which also have significant tax implications.

 

For the purposes of deducting contributions to a traditional individual retirement account (IRA), Armed Forces' members (including reservists on active duty for more than 90 days during the year) are considered to be active participants in an employer-maintained retirement plan. Income received under the combat pay exclusion does not qualify as earned income for IRA contribution purposes. Military members contributing to an IRA or spousal IRA need to seek tax advice if they contribute to an IRA and have little or no taxable earnings for the year due to the combat pay exclusion.

 

"It's also important to remember that individuals serving in the U.S. Armed Forces or in support of the U.S. Armed Forces in designated combat zones have additional time to make a contribution to an IRA," said Steber. "The tax laws, while fair, can be complex and overwhelming, so it's always a good idea to seek assistance from a tax professional if you're unsure of your tax situation."

 

Military members may be eligible for a Retirement Savings Contribution Credit if they participate in the Thrift Savings Plan (TSP) or make an IRA contribution during the year. For a joint return, the maximum credit is $2,000. Otherwise, the maximum credit is $1,000. The amount of the tax credit may be offset by any taxable distribution paid directly to you by any IRA or retirement plan (including the TSP) during the tax year, the last two tax years, and up to the due date of the tax return claiming the credit. Your adjusted gross income must be under $50,000 if married filing jointly, $37,500 if head of household or $25,000 if single or married filing separately.

 

When determining the Additional Child Tax Credit, earned income includes combat pay, which is excluded from gross income. This could mean a higher credit for those with a moderate taxable income. For example, a couple that is married filing jointly and have two qualifying children for the child tax credit earned $36,000, of which $9,000 is taxable earned income and $27,000 is combat pay. Under the old rules, before combat pay was included, there would be no additional child tax credit. Under the new rules, including combat pay, the additional child tax credit is $2,000.

 

For the purpose of calculating the Earned Income Tax Credit (EITC), military members can elect to include combat pay as earned income, which is excluded from gross income. There are certain instances when including combat pay to calculate earned income for EITC can be beneficial or detrimental. For example, a military member who is single and has one qualifying child for EITC earned $20,300, of which $300 is taxable earned income and $20,000 is combat pay. Without including combat pay, the EITC is $111. By including combat pay, the EITC is $1,648, an increase of $1,537. Another example is if a military member who is single and has one qualifying child for the EITC earned $50,000, of which $20,000 is taxable earned income and $30,000 is combat pay. Without including combat pay, the EITC is $1,648. However, there is no EITC if combat pay is included. This provision is effective for 2004 and 2005. Combat pay is otherwise excluded from gross income under Internal Revenue section 112.

 

"Today's military members often have very diverse sources of income, as well as a variety of tax credits and deductions," said Steber. "Properly taxing the income and taking advantage of the numerous credits and deductions is the key to lowering taxes and increasing refunds."

 

Jackson Hewitt began its annual "Support Our Troops" campaign last year with its "Support Our Troops Banner Campaign," which placed over 4,900 banners in Jackson Hewitt office locations nationwide for employees, customers and area residents to sign with well wishes. The banners were then sent by the Army National Guard to troops around the world.

 

This year, as part of its continuing "Support Our Troops" campaign, Jackson Hewitt launched a national "Support Our Troops" Book Drive, running March 15 through April 15, at Jackson Hewitt locations nationwide. Books collected will be distributed by the Army National Guard to troops around the world. Jackson Hewitt is also sponsoring "Support Our Troops" Military Family Bowling events at seven military bases across the country.

 

Jackson Hewitt Tax Service Inc. (NYSE: JTX) is the second largest tax preparation service company in the United States, with over 5,400 franchised and company-owned offices in 49 states and the District of Columbia. Specializing in electronic filing (IRS e-file), the Company provides full service, individual federal and state income tax preparation and facilitates related financial products. Most Jackson Hewitt offices are independently owned and operated. Jackson Hewitt is based in Parsippany, New Jersey. More information about the Company may be obtained by visiting the Company's Web site at www.jacksonhewitt.com.  

Contact Allison Jackson

Senior Manager, Communications

Jackson Hewitt Tax Service Inc.

973-496-7536

allison.jackson@jtax.com