Special EITC Rules
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 or have a qualifying child with a disability.
Military
Nontaxable military pay
Nontaxable pay for members of the Armed Forces is not considered earned income for the Earned Income Tax Credit or EITC. Examples of nontaxable military pay are combat pay, the Basic Allowance for Housing (BAH), and the Basic Allowance for Subsistence (BAS). See the special rules for Combat Pay and EITC below.
Combat Pay and EITC
You can elect to include your nontaxable combat pay in earned income for EITC. If you are filing a joint return and both you and your spouse received nontaxable combat pay, you can each make your own election. You and your spouse can each choose to have all of your nontaxable combat pay included in earned income or none. That is, you can choose to include all your nontaxable combat pay and your spouse can choose zero, or you can both choose to include all or you can both choose none. But, if you (and/or your spouse) 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. Find more examples in Publication 596 under Nontaxable Combat Pay.
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. The amount of your nontaxable combat pay is on your Form W-2, in box 12, with code Q.
Click here to find the areas considered Combat Zones.
Click here for Questions & Answers on more Combat Zones provisions.
Military Personnel Stationed Outside the United States
Members of the military on extended active duty outside the Unites States are considered to live in the United States for tax purposes. See Publication 596 for the definition of extended active duty.
Find more Tax Information for Members of the U.S. Armed Forces here.
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)
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Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners, or
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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 and EITC
Some disability retirement benefits qualify as earned income to claim EITC. Also, you may claim a relative of any age who is totally and permanently disabled and fits all other eligibility requirements.
Read more about Disability and EITC.
Read more about Disability Benefits in Publication 596, Earned Income Credit
Disaster Situations
If you lived in a declared disaster area,such as, the Kansas Storms of 2007, the Midwestern Disaster of 2008, and your earned incomes was less than your previous year's, you may qualify to use your previous year's earned income instead of the current year earned income to figure your EITC. Get the Latest Tax Relief Guidance in Disaster Situations.
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