Read more about the rules for calculating earned income if you are:

• A member of the military,
• A minister or member of the clergy,
• Impacted by disasters, or
• Receiving disability benefits

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Military

You and your spouse can each elect to have your nontaxable combat pay included in earned income for the earned income credit. The amount of your nontaxable combat pay should be shown on your Form W-2, in box 12, with code Q.

Electing to include nontaxable combat pay in earned income may increase or decrease your EITC. Calculate your taxes both ways to find out what's best for you.

Nontaxable military pay

Nontaxable pay for members of the Armed Forces is not considered earned income for the EITC.  Examples of nontaxable military pay are combat pay, the Basic Allowance for Housing (BAH), and the Basic Allowance for Subsistence (BAS).

Note:  Members of the military on extended active duty outside the Unites States are considered to live in the United States for tax purposes.  

Find more Tax Information for Members of the U.S. Armed Forces

Members of the Clergy

If you are a minister or member of a religious order, you may have net earnings from self-employment.

Minister’s housing. The rental value of a home or a housing allowance provided to a minister as part of the minister’s pay generally is not subject to income tax but is included in net earnings from self-employment. For that reason, it is included in earned
income for the EITC (unless you have an approved Form 4361 or Form 4029)

• Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners, or
• Form 4029, Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits.

Each approved form exempts certain income from social security taxes:

Form 4361. Even if you have an approved Form 4361, amounts you received for performing ministerial duties as an employee count as earned income. This includes wages, salaries, tips, and other taxable employee compensation. Amounts you received for performing ministerial duties, but not as an employee, do not count as earned income. Examples include fees for performing marriages and honoraria for delivering speeches.

Form 4029. Even if you have an approved Form 4029, all wages, salaries, tips, and other taxable employee compensation count as earned income. However, amounts you received as a self-employed individual do not count as earned income. Also, in figuring earned income, do not subtract losses on Schedule C, C-EZ, or F from wages on line 7 of Form 1040.

Read more in the Earned Income Section of Publication 596,  Earned Income Credit

Disability Benefits

Disability retirement benefits are considered earned income until you reach minimum retirement age. Minimum retirement age is the earliest age you could have received a pension or annuity if you were not disabled.

After you reach minimum retirement age, the payments are taxable as a pension and not considered earned income.

Benefits such as Social Security Disability Insurance, SSI, or military disability pensions are not considered earned income and thus, cannot be used to claim the Earned Income Tax Credit (EITC).  You may qualify for the credit only if you, or your spouse, also have earned income.

Read more about Disability Benefits in Publication 596, Earned Income Credit

Claiming children with disabilities. A qualifying child of any age who is totally and permanently disabled can be claimed for the EITC.  All other eligibility requirements must also be met.  If the qualifying child who is totally and permanently disabled also receives disability benefits, they can still be claimed for the EITC.

Disability insurance payments. Payments you received from a disability insurance policy that you paid the premiums for are not earned income. It does not matter whether you have reached minimum retirement age. If this policy is through your employer, the amount may be shown in box 12 of your Form W-2 with code “J.”

Disaster Situations

If you lived in a disaster area in 2009, and your 2009 earned income was less than your 2008 earned income, you may qualify to use your 2008 earned income instead of your 2009 earned income to figure your EITC. Get the Latest Tax Relief Guidance in Disaster Situations.