When determining eligibility for the Earned Income Credit (EIC), not all income is treated the same. Only certain types of pay from working are considered “earned income.” Many common payments and benefits are excluded and should not be counted when calculating earned income for the credit. For full details and examples, see IRS Publication 596. The following is a summary of that information.

Common income that doesn’t qualify

The following items are not treated as earned income for EIC purposes:

• Interest and dividends
• Pensions and annuities
• Social Security or railroad retirement benefits (including disability)
• Alimony and child support
• Welfare or other public assistance benefits
• Workers’ compensation and unemployment benefits
• Nontaxable foster care payments
• Veterans’ benefits, including VA rehabilitation payments

Other situations where income doesn’t count

• Pay earned while incarcerated: Income from work performed while in prison, jail, a work-release program, or a halfway house is not considered earned income for the EIC.
• Workfare payments: Certain nontaxable payments received through state or local assistance programs funded by TANF, where work activities are required, are excluded from earned income.
• Community property states: If you qualify to file as head of household under special rules and live in a community property state, your earned income for the EIC includes only what you earned. Income earned by your spouse isn’t counted as your earned income for the credit.
• Registered domestic partners (NV, WA, CA): Similar rules apply—only your own earnings are included when figuring earned income for the EIC.
• Conservation Reserve Program (CRP) payments: These payments aren’t earned income if you were receiving Social Security retirement or disability benefits when they were paid.
• Nontaxable military pay: Items such as combat pay, housing allowances, and subsistence allowances generally don’t count as earned income.

Special note on combat pay

Although combat pay is normally excluded, you may choose to include it as earned income if doing so increases your Earned Income Credit.