@Apetricek In this public forum we can't see your account to state specifically what you are seeing, but here's some possibilities:
- Federal. All of your military income is taxable on the Federal return. However, when adding it you can possibly see an increase of your refund for a couple of different reasons. If your overall income is not that high, then taxes withheld from this income might be getting refunded back (or mostly refunded back). If you have children as dependents, the combination of child tax credit and earned income credit can also potentially increase your refund. One final possibility is that you could also receive more refund for stimulus payments that were not received last year, or you could qualify for other credits that is helping to increase your refund. Of course, if your refund went down, this is because of increased taxable income.
- State of Kentucky. As I posted earlier, Kentucky does not tax active duty income. But that doesn't mean that active duty income doesn't affect the refund. Without the income, it is likely that your other income's tax was being refunded because of a credit in Kentucky called the Family Size Tax Credit. The Family Size Tax Credit is allowed when your income is considered low based on the size of your family (from 1 to up to 4 qualified family members). However, when the Active-Duty income is added on, then the credit can be reduced or eliminated. While the Active Duty income is not taxed, it does factor in for this credit. If, on the other hand, your refund increased, then there are two possibilities. The first is that KY state income tax was withheld from your active-duty income when it should not have been. The other possibility is that Kentucky does have a few exemption credits for members of the National Guard. (It is a small amount but nevertheless could increase your refund).
If none of these possibilities addresses what you see on your return, please feel free to comment and we might be able to give additional information.
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