Final answer:
Taxpayers can elect to include nontaxable combat pay as earned income for the Earned Income Tax Credit (EITC) and the Child Tax Credit, both of which are significant programs intended to reduce poverty and support low-income workers and their families.
Step-by-step explanation:
The two specific credits that allow taxpayers to elect to include nontaxable combat pay as earned income are the Earned Income Tax Credit (EITC) and the Child Tax Credit.
The Earned Income Tax Credit (EITC) is a significant assistance program established in 1975 to help the working poor through tax incentives. It is designed to provide a boost to low-income earners through a tax credit that increases with the amount of income earned, up to a certain point, providing financial assistance that grows with work effort.
Meanwhile, the Child Tax Credit offers a similar benefit, and including combat pay as part of earned income can increase the amount of tax credit one can claim. Both the EITC and the Child Tax Credit have been influential in reducing poverty and encouraging work among low-to-moderate-income families.
The inclusion of nontaxable combat pay can be particularly beneficial to military families, as it gives them the option to count this pay toward their earned income, potentially increasing the tax credits they are eligible for. These programs are essential tools in the fight against poverty and in supporting working families of modest means.