The earned income tax credit (EITC) benefits certain people who work and have earned income that’s less than $53,930. A member of the armed forces can elect to have their nontaxable combat pay included in earned income for purposes of the EITC. Doing so may increase or decrease their EITC. The IRS encourages these taxpayers to calculate their taxes both ways to find out what's best for them.
Taxpayers who elect to include their combat pay in income must include all nontaxable combat pay they received. They can't choose to include only a part of the nontaxable combat pay in earned income.
Couples with two members of the military filing a joint return have a few options when deciding whether to include combat pay in their income: ● Spouse 1 can choose to include all their nontaxable combat pay and spouse 2 can choose zero. ● Spouse 1 can choose to include zero and spouse 2 can choose to include all of it. ● They can both choose to include all their nontaxable combat pay. ● They can both choose not to include their nontaxable combat pay.
The taxpayer can find the amount of their nontaxable combat pay on their Form W-2, in box 12, with code Q.