Military and Clergy Rules for the Earned Income Tax Credit
Special rules apply when calculating the Earned Income Tax Credit (EITC) for military members and clergy members or ministers. This article will outline the specific rules and guidelines for each group.
Military Members
If you are a member of the military and claim the EITC, there are two additional rules to consider if you:
- Get nontaxable military pay, such as combat pay or a housing allowance or subsistence allowance.
- Were stationed outside the United States.
Nontaxable Military Pay
If you or your spouse received nontaxable pay as a member of the Armed Forces, you do not have to include it as earned income on your federal taxes. However, if you choose to include your nontaxable pay as earned income for the EITC, you may owe less tax and receive a larger refund. If you decide to include your nontaxable pay, you must include all of it.
To determine the amount of your nontaxable combat pay, refer to your Form W-2, box 12 with code Q.
How to Include Nontaxable Pay when Claiming the EITC
There are four ways you can include nontaxable pay when claiming the EITC:
- Choose to include all your nontaxable pay while your spouse doesn't include any of their nontaxable combat pay.
- Choose to include none of your nontaxable pay while your spouse includes all their nontaxable combat pay.
- Both choose to include all your nontaxable pay.
- Both choose not to include any of your nontaxable pay.
For more examples and information, refer to Publication 596, Earned Income Credit.
Military Personnel Stationed Outside the United States
For tax purposes, we consider members of the military on extended active duty outside the United States to have their main home in the United States. For a definition of extended active duty, refer to Publication 596, Earned Income Credit.
Clergy Members or Ministers
If you are a clergy member or minister, there are specific guidelines you must follow when calculating the EITC.
Minister's Housing
If the church provided housing to you as part of your minister's pay, you should include the rental value of the home or housing allowance as part of your earned income from self-employment for the EITC. The rental value of the home is the amount the church would receive if they charged you rent. However, if you have an approved Form 4361 or Form 4029, you do not need to include this.
What Counts as Income for a Minister
As a minister, you may file a request for your income to be exempt from Social Security taxes using Form 4029 or Form 4361. However, if you receive income for working as a minister who is an employee, you must count it as earned income. This includes wages, salaries, tips, and other taxable employee compensation. Do not subtract losses on Schedule C, C-EZ, or F from wages reported on lines 1a through 1h of Form 1040 or 1040-SR when calculating your earned income.
If you receive income for working as a minister who is not an employee, such as self-employed wages, fees for performing marriages, or honoraria for delivering speeches, do not count it as earned income.
For more information about ministers and earned income, refer to Publication 596, Earned Income Credit.
Resources
Note: This article provides an overview of the special rules for military members and clergy members when calculating the EITC. For more detailed information and specific scenarios, please refer to the relevant publications and consult with a tax professional.