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 included in gross income on your tax return.
Types of Income Not Considered Earned Income for the EIC
Nontaxable military pay:
Certain nontaxable income is not treated as earned income, including:
- Nontaxable combat pay (you may elect to include this for EIC purposes)
- Allowances such as Basic Allowance for Housing (BAH) and Basic Allowance for Subsistence (BAS)
Workfare payments:
- Nontaxable payments received under a workfare program (such as certain TANF program payments) are not earned income.
Earnings While Incarcerated:
- Amounts received for work performed while an inmate in a penal institution are not considered earned income.
Community property income
- If you are married and file as head of household or married filing separately under special rules, and live in a community property state, income earned by your spouse that is treated as belonging to you under state law is not considered your earned income for the EIC.
Domestic partner income (Nevada, Washington, California)
- If you are a registered domestic partner in one of these states, income earned by your partner is not considered your earned income for the EIC.
Conservation Reserve Program (CRP) Payments
- CRP payments are not earned income if you were receiving Social Security retirement or disability benefits at the time the payments were received.
Other Non-Earned Income:
The following types of income are not earned income for EIC purposes:
- Unemployment compensation
- Social Security benefits
- Pensions and annuities
- Interest and dividends
- Capital gains
- Alimony (for agreements executed after 2018)
- Child support
Key Notes
- Only income derived from performing services (work) qualifies as earned income.
- Even if excluded from earned income, some of the above items may still affect overall EIC eligibility through investment income limits or AGI thresholds.
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.