Special EITC Rules

 

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

  • Receiving disability benefits or have a qualifying child with a disability.
  • A member of the military
  • A minister or member of the clergy.

Disability and the EITC

Some disability retirement benefits qualify as earned income for purposes of eligibility for the EITC. Also, you may claim a child of any age who is permanently and totally disabled if the child meets all the other tests to be your qualifying child.

Read more about Disability and the EITC.

Read more about Disability Benefits in Publication 596, Earned Income Credit (PDF).

Military

Combat Pay

You do not have to report nontaxable pay you receive as a member of the Armed Forces as earned income for purposes of the EITC. Examples of nontaxable military pay are combat pay, the Basic Allowance for Housing (BAH), and the Basic Allowance for Subsistence (BAS). The amount of your nontaxable combat pay is on your Form W-2, in box 12, with code Q.

But, you and your spouse can each choose to have your nontaxable combat pay included in your earned income for purposes of the EITC. Including it as earned income may decrease the amount of tax you owe and may mean a larger refund. Calculate your taxes both with the nontaxable combat pay as earned income and without the nontaxable combat pay as earned income to find out what's best for you.

If you make the election, you must include in earned income all nontaxable combat pay you received. You can't choose to include only a part of the nontaxable combat pay in earned income. That is,

  • You can choose to include all your nontaxable combat pay and your spouse can choose not to include any of his or her nontaxable combat pay
  • You can choose to include none of your nontaxable combat pay and your spouse can choose to include all of his or her nontaxable combat pay
  • You can both choose to include all of your nontaxable combat pay
  • You can both choose not to include any of your nontaxable combat pay

Find more examples in Publication 596 (PDF) under Nontaxable Combat Pay.

Find the areas considered Combat Zones here.

Find Questions and Answers on more Combat Zones provisions here.

Military Personnel Stationed Outside the United States

Members of the military on extended active duty outside the Unites States are considered to have their main home in the United States for tax purposes.

See Publication 596 (PDF) for the definition of extended active duty.

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 EITC, unless you have an approved Form 4361 or Form 4029.

Each approved form exempts certain income from Social Security taxes:

Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners (PDF). Even if you have an approved Form 4361, amounts you received for performing ministerial duties as an employee count as earned income. These amounts include 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, Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits (PDF). 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 (PDF).