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Earned Income Credit (EIC) — How Do I Figure My Earned Income?: Military Taxes (2025 IRS Guide)

This guide covers “Earned Income Credit (EIC) — How Do I Figure My Earned Income?” within military taxes. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 3 (2025), Armed Forces' Tax Guide, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Context for these rules

The EIC is a credit for certain persons who work. The credit may give you a refund even if you don't owe any tax or didn't have any tax withheld.

You must satisfy certain criteria in order to claim the EIC. The criteria you must meet depends on whether you have a qualifying child. Detailed information is provided under Claiming the EIC if I Have a Qualifying Child and Claiming the EIC if I Don't Have a Qualifying Child, later.

Earned Income Credit (EIC) — How Do I Figure My Earned Income?

When figuring your earned income for the EIC, you must know what counts as earned income as well as what doesn't count as earned income. Both categories of income are described below.

What is included in my earned income for the EIC?

For purposes of the EIC, earned income generally includes the following.

Can I treat my nontaxable combat zone pay as earned income?

You can elect to include your nontaxable combat zone pay in earned income for the EIC. If you make the election, you must include in earned income all nontaxable combat zone pay you received. If you are filing a joint return and both you and your spouse received nontaxable combat zone pay, you can each make your own election. In other words, if one of you makes the election, the other one can also make it but doesn't have to.

The amount of your nontaxable combat zone pay should be shown on your Form W-2 in box 12 with code Q. Electing to include nontaxable combat zone pay in earned income may increase or decrease your EIC.

Figure the credit with and without your nontaxable combat zone pay before making the election. Whether the election increases or decreases your EIC depends on your total earned income, filing status, and number of qualifying children. If your earned income without your combat zone pay is less than the amount shown below for your number of children, you may benefit from electing to include your nontaxable combat zone pay in earned income and you should figure the credit both ways. If your earned income without your combat zone pay is equal to or more than these amounts, you won't benefit from including your combat zone pay in your earned income.

  • $8,490 if you have no qualifying children.

  • $12,730 if you have one qualifying child.

  • $17,880 if you have two or more qualifying children.

The following examples illustrate the effect of including nontaxable combat zone pay in earned income for the EIC.

Example 1—Election increases the EIC.

Gray and Jaidyn are married, were born in 1988, and will file a joint return. They have one qualifying child. Gray was in the Army and earned $15,000 ($5,000 taxable wages + $10,000 nontaxable combat zone pay). Jaidyn worked part of the year and earned $2,000. Their taxable earned income and AGI are both $7,000. Gray and Jaidyn qualify for the EIC and fill out the Worksheet A—2025 EIC—Line 27a in the Form 1040 instructions.

When they complete Worksheet A without adding the nontaxable combat zone pay to their earned income, they find their credit to be $2,389. When they complete Worksheet A with the nontaxable combat zone pay added to their earned income, they find their credit to be $4,213. Because making the election will increase their EIC, they elect to add the nontaxable combat zone pay to their earned income for the EIC. They enter $4,213 on line 27a, and they enter $10,000 on line 1i of their Form 1040.

Example 2—Election doesn't increase the EIC.

The facts are the same as in Example 1, except Gray had taxable wages of $5,000 and nontaxable combat pay of $35,000. When Gray and Jaidyn add their nontaxable combat pay to their earned income, they find their credit to be $2,242. Because the credit they can get if they don't add the nontaxable combat pay to their earned income is $2,389, they decide not to make the election. They enter $2,389 on line 27a of their Form 1040.

What isn't earned income for the EIC?

When figuring your earned income for purposes of the EIC, don't include any of these amounts.

  • Basic pay or special, bonus, or other incentive pay that is subject to the combat zone exclusion (unless you make the election described earlier under Can I treat my nontaxable combat zone pay as earned income).

  • BAH.

  • BAS.

  • Any other nontaxable employee compensation.

  • Interest and dividends.

  • Social security and railroad retirement benefits.

  • Certain workfare payments.

  • Pensions or annuities.

  • Veterans' benefits (including VA rehabilitation payments).

  • Workers' compensation.

  • Unemployment compensation.

  • Alimony and child support.

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.

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