There is no "downside" related to the election of treating combat pay as earned income for the purpose of the earned income tax credit (EITC). This election is specific to EITC only. TurboTax can help you with this election. You can still exclude the combat income from the gross income even though you elect to treat combat pay as earned income for the purpose of EITC. The exclusion from gross income is automatic because of the code Q in box 12 of the W-2.
Please see IRS Publication 3 for more details.
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