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pay, which you can choose to include in earned income. Earned income is explained in detail in Rule 7 in chap- ter 1. Election to use prior-year earned income. You can elect to use your 2019 earned income to figure your 2021 earned income credit (EIC) if your 2019 earned income is more than your 2021 earned income. To make this elec- tion, enter the amount of your 2019 earned income on Form 1040 or 1040-SR, line 27c. You can't use your 2020 earned income instead of your 2021 earned income. You can only use your 2019 earned income if it is more than your 2021 earned income. If you file a joint return and make the election, your 2019 earned income is the sum of your 2019 earned in- come and your spouse's 2019 earned income. Figuring earned income. If you are self-employed, a statutory employee, or a member of the clergy or a church employee who files Schedule SE (Form 1040), you will fig- ure your earned income when you fill out Part 4 of EIC Worksheet B in the Form 1040 and 1040-SR instructions. Otherwise, figure your earned income by using the worksheet in Step 5 of the Form 1040 and 1040-SR in- structions for line 27a. When using one of those worksheets to figure your earned income, you will start with the amount on Form 1040 or 1040-SR, line 1. You will then reduce that amount by any amount included on that line and described in the following list. • Scholarship or fellowship grants not reported on a Form W-2. A scholarship or fellowship grant that wasn't reported to you on a Form W-2 isn't considered earned income for the earned income credit. • Inmate's income. Amounts received for work per- formed while an inmate in a penal institution aren't earned income for the earned income credit. This in- cludes amounts received for work performed while in a work release program or while in a halfway house. If you received any amount for work done while an in- mate in a penal institution and that amount is included in the total on Form 1040 or 1040-SR, line 1, put “PRI” and the amount on the dotted line next to Form 1040 or 1040-SR, line 1. • Pension or annuity from deferred compensation plans. A pension or annuity from a nonqualified defer- red compensation plan or a nongovernmental section 457 plan isn't considered earned income for the earned income credit. If you received such an amount and it was included in the total on Form 1040 or 1040-SR, line 1, put “DFC” and the amount on the dot- ted line next to Form 1040 or 1040-SR, line 1. This amount may be reported in box 11 of your Form W-2. If you received such an amount but box 11 is blank, contact your employer for the amount received as a pension or an annuity. • Medicaid waiver payments. Certain Medicaid waiver payments may be excluded from income under CAUTION ! Notice 2014-7. You may include these payments in earned income if you benefit from the inclusion. For more information about these payments, see Pub. 525. Clergy. If you are a member of the clergy who files Schedule SE and the amount on line 2 of that schedule in- cludes an amount that was also reported on Form 1040 or 1040-SR, line 1, subtract that amount from the amount on Form 1040 or 1040-SR, line 1, and enter the result on line 1 of the worksheet in Step 5 of the Form 1040 and 1040-SR instructions for line 27a. Enter “Clergy” on the dotted line next to line 27a (Form 1040 and 1040-SR). Church employees. A church employee means an employee (other than a minister or member of a religious order) of a church or qualified church-controlled organiza- tion that is exempt from employer social security and Medicare taxes. If you received wages as a church em- ployee and included any amount on both line 5a of Sched- ule SE and Form 1040 and 1040-SR, line 1, subtract that amount from the amount on Form 1040 and 1040-SR, line 1, and enter the result on line 1 of the worksheet in Step 5 of the Form 1040 and 1040-SR instructions for line 27a. Nontaxable combat pay. You can elect to include your nontaxable combat pay in earned income for the earned income credit. If you make the election, you must include in earned income all nontaxable combat pay you received. If you are filing a joint return and both you and your spouse received nontaxable combat 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 pay should be shown on your Form W-2 in box 12 with code Q. Electing to include nontaxable combat pay in earned in- come may increase or decrease your EIC. Figure the credit with and without your nontaxable combat pay be- fore making the election. Whether the election increases or decreases your EIC depends on your total earned in- come, filing status, and number of qualifying children. If your earned income without your combat pay is less than the amount shown below for your number of children, you may benefit from electing to include your nontaxable com- bat pay in earned income and you should figure the credit both ways. If your earned income without your combat pay is equal to or more than these amounts, you will not bene- fit from including your combat pay in your earned income. • $9,800 if you have no children who have a valid SSN. • $10,600 if you have one child who has a valid SSN. • $14,900 if you have two or more children who have valid SSNs. If you elect to use your nontaxable combat pay in figuring your EIC, enter that amount on Form 1040 or 1040-SR, line 27b. CAUTION ! Page 20 Chapter 4 Figuring and Claiming the EIC