Who Qualifies for Earned Income Credit?

5) Low investment income

Your investment income cannot be more than $2,800. For most people, investment is income is the total of taxable and tax exempt interest income, dividend income, and net capital gain income. To determine whether you exceed the $2,800 threshold limit for investment income, add the amounts from:

• tax form 1040 lines 8a, 8b
• tax form 1040 line 9a and line 13
• tax form 8814 line 1b and the amount carrying from it to Form 1040 line 21.

However, if you are reporting income from certain other gains, see Worksheet 1: Investment Income If You Are Filing Form 1040 found in IRS Publication 596, Earned Income Credit for more information.

6) Must have earned income

You must have earned income. This credit is called the "earned income credit" because you must work and have earned income to claim the credit. If you are married and file a joint return, you meet this rule if at least one spouse works and has earned income. For most people earned income is reported on Form 1040 line 7. Net earnings from self employment are also earned income.

Only social security benefits and investments do not qualify the taxpayer for earned income credit. Social security benefits and investment income are generally not considered earned income for the earned income credit qualification purposes.

Nontaxable combat pay election

You can elect to have your nontaxable combat pay included as earned income for the earned income tax credit qualification purpose. Electing to include nontaxable combat pay in earned income may increase or decrease the earned income credit or EIC. If you make the election, you must include all nontaxable combat pay in earned income. The amount of nontaxable combat pay should be shown on Form W-2, box 12 and indicated with code Q. If the election is made, the nontaxable combat pay is entered on the form 1040 line 66b.

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