For purposes of the Earned Income Credit (EIC), earned income generally includes wages, salaries, tips, and net earnings from self-employment. However, several types of income are specifically excluded from earned income even if they are taxable or included in gross income on your tax return.
Types of Income Not Considered Earned Income for the EIC
Nontaxable military pay: Certain military compensation is not earned income for EIC purposes, including Basic Allowance for Housing (BAH) and Basic Allowance for Subsistence (BAS). Nontaxable combat pay is not automatically earned income, but you may choose to include it as earned income for the EIC if it increases your credit.
Workfare payments: Payments received under certain public assistance work programs are not considered earned income for the EIC.
Earnings while incarcerated: Amounts paid for work performed while an inmate in a penal institution are not considered earned income.
Pensions, annuities, and retirement distributions: Amounts received from pensions, annuities, and IRA or retirement plan distributions (including Form 1099-R income) are not earned income.
Unemployment compensation: Unemployment benefits are not earned income.
Social Security benefits: Social Security retirement, survivor, and disability benefits are not earned income.
Interest, dividends, and capital gains: Investment income such as interest, dividends, and capital gains is not earned income.
Child support and alimony: Child support is not earned income. Alimony is not earned income for EIC purposes.
Other non-earned income: Other amounts that are not compensation for services performed are not treated as earned income for the EIC.
Key Notes
- Only income received for performing work or services generally qualifies as earned income for the EIC. Even if certain income is not earned income, it may still affect EIC eligibility through the investment income limit or adjusted gross income (AGI) phase-out rules
Source:
Publication 596 (2025)
Disclaimer: Always verify with the current Federal or State Department of Revenue Forms and Instructions. This information is based on IRS guidelines and may not cover all individual circumstances. For complex situations, consult a tax professional or attorney.