Earned Income Credit

Earned Income That Is Not Taxed

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Question or Topic

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The Question: What must be included in income for the computation of the Earned Income Credit?

Objectives

	The Answer

Income

Add all your nontaxable earned income, including your spouse’s if filing a joint return. This includes anything of value (money, goods, or services) that is not taxable that you received from your employer for your work. Types of nontaxable earned income are listed below.

● Salary deferrals, such as a 401(k) plan or the Federal Thrift Savings Plan, shown in box 12 of your W-2 form.

● Salary reductions, such as under a cafeteria plan, unless they are included in box 1 of your W-2 form. See page 44.

● Military employee basic housing, subsistence, and combat zone compensation. These amounts are shown in box 12 of your W-2 form with code Q.

● Meals and lodging provided for the convenience of your employer.

● Housing allowances or rental value of a parsonage for clergy members. If filing Schedule SE, see Clergy on this page.

● Excludable dependent care benefits from Form 2441, line 18, employer-provided adoption benefits from Form 8839, line 26, and educational assistance benefits (these benefits may be shown in box 14 of your W-2 form).

● Mandatory contributions to a state or local retirement plan.

● Certain amounts received by Native Americans.

Note: Nontaxable earned income does not include welfare benefits or workfare payments, or qualified foster care payments.

	Solutions

Solutions are dependent upon facts & circumstances, law and the objectives. These elements vary from one time to another, from one circumstance to another and from person or entity to another.

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