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This question is about salaries.
What is earned income combat pay?
Earned income combat pay is income that is earned while stationed in a designated combat zone while in service to the United States military.
Combat pay includes all military pay, including wages earned, as well as any reenlistment or other bonuses received during a month in which the service member was stationed in a combat zone for at least one day.
Combat pay is exempt from income taxes and provides military personnel with additional compensation for serving in danger zones.
While service members do not have to report their nontaxable pay, it can be counted towards earned income for the Earned Income Tax Credit (EIC). Counting nontaxable combat pay as earned income still doesn't make it combat pay taxable, and getting the EIC could reduce the amount of taxes owed.
That being said, it can also reduce the amount of EIC a service member gets if they have other earned income, too. The EIC requires that you have some earned income to qualify, but the more income you report, the less of the tax credit you qualify for (because the EIC is designed to help low- to moderate-income households).
It should be noted that a service member cannot only use part of their pay towards the EIC. If they count any combat pay towards earned income, they must count all of it. Service members are encouraged to compare the outcomes of including or not including the nontaxable combat pay as earned income.
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