1. When a servicemember's contributions to a traditional Thrift Savings Plan (TSP) include combat pay, how are distributions from that plan treated?

Any distributions from the Thrift Savings Plan are tax-exempt.

The portion of the distribution attributable to combat pay is tax-exempt. The earnings on that portion are taxable.

The distributions are treated like any other defined-contribution plan and are taxable.

Both the portion of the distribution attributable to combat pay and the earnings from that portion are tax-exempt.

2. Corporal Ethan Marshall was deployed in a combat zone for all of 2020. He is married and has three children. Ethan's nontaxable combat pay in 2020 is $26,000. His wife worked part-time while Ethan was deployed and earned $6,500. What is the maximum amount of earned income the Marshalls can report for Earned Income Tax Credit purposes in 2020?

$32,500

$26,000

$19,500

$6,500