EITC and nontaxable combat pay: should you elect to include it?

Why this is a choice and not a rule

Nontaxable combat pay normally is not earned income for the credit. Publication 596 lists nontaxable military pay, such as combat pay, the Basic Allowance for Housing and the Basic Allowance for Subsistence, among the items that are not earned income. The exception is combat pay, which you may elect to include. Because extra earned income can raise the credit for some families and lower it for others, the publication leaves the choice to you. You report the amount from Form W-2, box 12, code Q. If you make the election, you enter the nontaxable combat pay on Form 1040 or 1040-SR, line 1i.

All or nothing, and spouse by spouse

If you elect, you must include all the nontaxable combat pay you received, not a chosen slice. On a joint return where both spouses had nontaxable combat pay, each spouse can make their own election: one can include theirs and the other can leave theirs out, or both can include it. That gives married couples four combinations to compare, which is why running the numbers both ways matters more on a joint return than on a single one.

The three thresholds

The publication gives a quick screen using earned income without the combat pay. If it is below $8,490 for a taxpayer with no children who have valid Social Security numbers, below $12,730 with one such child, or below $17,880 with two or more, you may benefit from the election and should compute the credit both ways. If earned income without the combat pay is equal to or more than the figure for your family, you will not benefit from including combat pay. These are the 2025 figures as printed in the edition read; they are screens, not the credit itself. The credit amount comes from the EIC table in the Form 1040 instructions or the EIC worksheets.

Worked example

A single parent with one child who has a valid SSN earned $10,000 in wages and received $6,000 of nontaxable combat pay. Without combat pay, $10,000 is below $12,730, so the screen says the election may help. With it, earned income would be $16,000, which is far below the one-child limit of $50,434, so the election does not disqualify the parent. The next step is to look up the credit at $10,000 and at $16,000 in the EIC table and pick the larger. Now take a couple with two qualifying children and $30,000 of other earnings; $30,000 is above the $17,880 screen, so adding combat pay will not increase the credit, and may cut it. The checker above does the screening and the limit check; you still need the table or worksheet for the dollar answer.

Limits still apply with the election

Electing does not lift the ceiling. Your earned income must still be under $61,555 ($68,675 jointly) with three or more children, $57,310 ($64,430) with two, $50,434 ($57,554) with one and $19,104 ($26,214) with none. Your adjusted gross income must be under the same figure. Check the other rules as well, including the investment income test in Rule 6 and the residency tests for children. Military personnel stationed outside the U.S. on extended active duty are treated as living in the U.S. for the credit, as covered in our residency page.

Before you decide

Because the right answer depends on total earned income, filing status and the number of children, the publication says to figure the credit with and without the combat pay before making the election. Tax software and a free VITA or MilTax preparer can run both versions. MilTax is the free Department of Defense service the publication lists for service members and qualified veterans.

Sources

• IRS Publication 596, Earned Income Credit (EIC) (2025): Rule 7, Earned Income (Nontaxable military pay; Nontaxable combat pay election); chapter 4, Rule 15, Nontaxable combat pay; Rule 1 and Rule 15 income limits. Read November 2, 2026.

Edition read: Publication 596 (2025), Earned Income Credit (EIC), for use in preparing 2025 returns. Dollar amounts and dates on this page are the 2025 figures printed in that edition; they change by tax year, so check the current publication and form instructions for the year you file. This page summarizes the publication and does not replace it.