The amount of your nontaxable combat pay should be shown on your Form W-2 Wage and Tax Statement, Box 12, code "Q." For information about how to report this in your TaxAct return, go to our Form W-2 - E-Filing with Nontaxable Combat Pay FAQ.
Per IRS Publication 3 Armed Forces' Tax Guide, page 24:
What is included in my earned income for the EIC? For purposes of the EIC, earned income generally includes the following.
Can I treat my nontaxable combat zone pay as earned income? You can elect to include your nontaxable combat zone pay in earned income for the EIC. If you make the election, you must include in earned income all nontaxable combat zone pay you received. If you are filing a joint return and both you and your spouse received nontaxable combat zone pay, you can each make your own election. In other words, if one of you makes the election, the other one can also make it but doesn't have to.
The amount of your nontaxable combat zone pay should be shown on your Form W-2 in box 12 with code Q. Electing to include nontaxable combat zone pay in earned income may increase or decrease your EIC.
What isn't earned income for the EIC? When figuring your earned income for purposes of the EIC, don't include any of these amounts.
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