Earned Income Credit with Military Retirement Pay - Does it Count?

Military retirement pay is considered unearned income, just like other pensions, interest, and dividends. For the Earned Income Credit (EIC), only earned income counts towards qualifying for the credit - things like wages, salaries, tips, and self-employment income. However, your total income (both earned and unearned) is what's used to determine if you're over the investment income limit for EIC, which is $11,000 for 2024 tax year. So while military retirement doesn't help you qualify for EIC, it can potentially push you over income limits. Based on what you've shared, your combined income is likely too high for EIC regardless. For 2024, the income limit for married filing jointly with three qualifying children is around $63,400 in earned income. Your husband's W-2 income alone ($58,000) is getting close to that threshold.

Just wanted to share my experience - I was in a similar situation with military retirement and EIC questions. After spending hours going in circles with tax publications, I used https://taxr.ai to analyze my tax documents and my specific situation. Uploaded my 1099-R, W-2, and some basic info about my kids, and it clearly explained how my military retirement impacts EIC eligibility. The tool showed me that while my military retirement doesn't count as earned income for EIC qualification purposes, it still counts toward my AGI which affects the overall income limits. What was really helpful was it ran calculations both ways so I could see exactly why I didn't qualify, instead of just guessing.

I just tried taxr.ai after seeing the recommendation here, and it was exactly what I needed for my husband's firefighter pension questions! I've been confused for years about how his pension impacts our eligibility for various credits. The tool confirmed what I suspected - we were missing out on a partial EIC claim because I was counting all his income incorrectly. It analyzed our situation and showed that while his pension doesn't count as earned income, his part-time job does, and I was eligible for a partial credit based on my income plus his part-time work. Saved us over $1,200 this year and showed me how to amend last year's return too! Really glad I found this thread - thanks for the recommendation!

If you're still having issues figuring this out or want to confirm directly with the IRS, I'd recommend using https://claimyr.com to get through to an IRS agent quickly. I tried calling the IRS directly about a similar retirement income question and was on hold for hours before giving up. With Claimyr, I got through to a specialist in about 20 minutes who confirmed exactly how my pension income affected my EIC eligibility. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c After years of incorrect advice from "tax experts" at those seasonal tax places, it was a relief to get a definitive answer straight from the IRS. They even documented the conversation in my account so if there was ever an audit question, I'd have proof I tried to do everything correctly.

I need to eat some humble pie here. After being skeptical about Claimyr, I decided to try it anyway because I was desperate to talk to someone at the IRS about my own retirement question. I was shocked when it actually worked. Got connected to a real IRS agent in about 25 minutes (compared to the 3+ hours I spent trying on my own last month). The agent confirmed that my military retirement doesn't count as earned income for EIC calculations, but it does count toward the overall income limit - exactly what others here were saying. The agent also explained that I might still qualify for a partial credit depending on my spouse's income and our filing status. Worth every penny to get a definitive answer directly from the IRS.

Just to add something important - if your income is too high for EIC, don't forget to check if you qualify for the Child Tax Credit instead! Unlike EIC, the Child Tax Credit has much higher income limits before it starts phasing out. For 2024, married couples filing jointly can have up to $400,000 in modified AGI before the Child Tax Credit starts phasing out. With 3 kids, that could be worth up to $6,000 ($2,000 per qualifying child), which is usually more than what EIC would provide anyway.

As a retired military member myself, I can confirm what others have said about military retirement not counting as earned income for EIC. Your neighbor might be making a mistake that could cause problems if they get audited. One thing nobody mentioned - check if your state offers any special tax breaks for military retirement. Many states don't tax military retirement income at all, which can save you thousands depending on where you live!

This is such a common confusion for military families! I went through the exact same thing when my spouse retired from the Air Force. The key distinction that helped me understand it was that military retirement pay is treated like any other pension for tax purposes - it's "unearned income" even though you definitely earned it through your service. What really helped us was getting a copy of IRS Publication 596 (Earned Income Credit) which spells out exactly what counts as earned income. Military retirement, along with other pensions, Social Security, unemployment compensation, and investment income are all specifically excluded from the earned income calculation. Your neighbors might be in a different situation income-wise, or they might be making an error that could catch up with them later. The IRS computers are pretty good at catching EIC claims that don't match up with the income reported on your tax documents. One silver lining - even though you can't claim EIC, make sure you're maximizing other credits like the Child Tax Credit that aren't limited by the "earned income" requirement. With three kids, that's potentially $6,000 right there!

I'm a tax preparer and see this confusion every tax season with military families! You're absolutely doing this correctly - military retirement pay is unearned income and doesn't qualify for EIC calculations, even though it does count toward your overall income limits. One thing I always tell clients in your situation: consider having your tax software or preparer run a "what if" scenario comparing married filing jointly vs. married filing separately. Sometimes when one spouse has significantly higher income, filing separately can unlock credits for the lower-earning spouse, though you'd lose other benefits like higher standard deduction. Also, since you mentioned your neighbors' situation - they might have different circumstances (lower civilian income, different filing status, or additional deductions) that keep them under the income thresholds. Or unfortunately, they might be claiming the credit incorrectly. The IRS matching system usually catches these errors within a couple years, so if they are making a mistake, they'll likely hear about it eventually. Keep documenting your research on this topic (like saving this thread) in case you ever need to show you made a good faith effort to understand the rules correctly!

This thread has been incredibly helpful! I'm a veteran spouse dealing with a similar situation - my husband gets VA disability compensation and I was confused about how that impacts our EIC eligibility too. For anyone else reading this who might have VA disability pay, I learned that VA disability compensation is treated differently than military retirement pay for tax purposes. VA disability is completely tax-free and doesn't count as income at all for EIC calculations (neither as earned income nor toward the income limits). So if you have VA disability, it won't hurt your EIC eligibility the way military retirement pay does. Just wanted to add that distinction since I see a lot of confusion about different types of military-related income. Thanks to everyone who shared their knowledge here - it's so much clearer now why some military families qualify for EIC and others don't!