Figure the credit amount with and without your combat pay. If it gets you a larger credit, use it. Don't include it if it increases your earned income so much that your credit is reduced. You can run the numbers both ways at the Internal Revenue Service's interactive program, the EITC Assistant, to help you decide.

Tax breaks for military homeowners, parents
Soldiers who have to sell a home because they are redeployed get a break on any capital gains they might have otherwise faced because they didn't own the property very long.

Generally, when a homeowner lives in a personal residence two of the past five years, up to $250,000 (or $500,000 for married filers) of capital gains on the sale is tax-free. Some military homeowners have found the residency rule hard to meet and have ended up owing taxes.

Thanks to the Military Family Tax Relief Act of 2003, such homeowners are exempt from the two-year requirement (for up to 10 years). This means they qualify for the full exclusion whenever they must move to fulfill service commitments.

The military relief bill also eases the tax bite on some other items. Housing assistance provided by the military to compensate for a drop in home values because of base closures or restructuring is no longer considered taxable income. Neither is child care or other eligible dependent care expenses provided under a military assistance program.

Civilian as well as military parents with a son or daughter heading to a service academy also can make use of savings from education savings accounts and qualified tuition programs without tax problems. Previously, distributions in these cases were subject to a 10-percent tax penalty, but military school appointments are now considered scholarships, excepting the account distributions from the penalty provision.

National Guard and Reserve personnel weren't forgotten. When these troops travel overnight for training, they can deduct travel and lodging costs even if they don't itemize deductions when they file. The tax break will be a new deduction reported directly on Form 1040 instead of Schedule A.

Help from HERO
The Heroes Earned Retirement Opportunities, or HERO, Act, which became law in May 2006, provides military taxpayers with the chance to add to tax-favored retirement accounts.

To contribute to an individual retirement account, or IRA, an individual must have earned income. Troops whose income consisted primarily of combat pay weren't able to put any money into an IRA because that pay is nontaxable.

But under the HERO Act, combat pay can now be considered for IRA contribution purposes. As with the EITC, the military taxpayer's combat pay remains nontaxable.

The law change also is retroactive to tax years 2004 and 2005, and allows military personnel the chance to amend their returns and make IRA contributions for either or both of those years.

The maximum IRA contribution allowed in 2004 was $3,000 ($3,500 for individuals age 50 or older); $4,000 ($4,500 for 50-plus taxpayers) in 2005. The deadline for refiling either of those year's tax returns and making associated IRA contributions is May 28, 2009, three years from the date the HERO became law.

Getting tax help
Because of the complexities of taxes and military service, not to mention the newly passed laws, you may need clarification about your specific tax circumstances. Don't hesitate to talk with representatives of your base's finance office.

Servicemen and women stationed abroad also can get tax information from January through mid-June at some U.S. embassies and consulates.

Additional tax information and updates for members of the armed forces are available year-round at a special IRS Web page.

Freelance writer Kay Bell writes Bankrate's tax stories from her Austin, Texas, home. She also writes two tax blogs, Eye on the IRS for Bankrate and Don't Mess With Taxes, and is the author of the book "The Truth About Paying Fewer Taxes."