The Earned Income Tax Credit (EITC) is a refundable tax credit for low‑ to moderate‑income workers.
It is designed to reduce the tax you owe and may result in a refund, even if you owe no tax.
For military members, certain special rules apply, including an optional choice to count combat pay as earned income.
EITC Rules for Military Members
1. Combat Pay Election
- Combat pay is not taxable, but you may choose to include it as earned income when calculating the EITC.
- This choice is optional and may increase or decrease your credit depending on your income.
- You must include all or none of your combat pay — partial inclusion is not allowed.
- If filing Married Filing Jointly, each spouse makes their own election separately.
Example:
George earns $5,000 in taxable wages and $6,000 in combat pay.
- Without including combat pay → EITC = $2,389
- Including combat pay → EITC = $3,050
✅ George includes his combat pay because it increases his refund.
2. Combat Zone Exclusion
- Combat pay is excluded from federal income tax.
- Combat pay is still subject to Social Security and Medicare taxes.
- Combat zones are designated by the President and listed in IRS Publication 3.
3. Stationed Overseas
- Military members on extended active duty outside the United States are treated as having a U.S. home for EITC purposes.
- Being stationed overseas does not automatically disqualify you from the EITC.
🏠 Other Nontaxable Military Pay (Not EITC‑Eligible)
The following cannot be included as earned income for EITC:
- Basic Allowance for Housing (BAH)
- Basic Allowance for Subsistence (BAS)
🧮 Strategic Use of Combat Pay
Because the EITC increases as income rises — up to a limit, including combat pay may:
- ✅ Increase your refund if your income is below the EITC phase‑out range
- ⚠️ Reduce or eliminate your credit if your income becomes too high
📌 DIY Tip:
Always run the return two ways (with and without combat pay included) and select the option with the higher EITC.