Five Things That Can Qualify or Disqualify You From the Earned Income Credit

The Earned Income Credit (EIC) is a refundable tax credit designed to help support low-income to moderate-income workers. It reduces the amount of tax owed and may also result in a refund. Without knowing, some people unintentionally impact their EIC eligibility, and many don’t realize claiming it one year doesn’t automatically qualify them the next. Read on to learn common reasons why people qualify or disqualify from claiming the EIC.

1. To qualify, you must have earned income. To claim the EIC, you are required to have earned income, like wages, salary or tips. Think of earned income as money you get from a job, as opposed to passive income like interest from a bank account. Some people don’t realize earned income also includes money made from self-employment, contractor fees and side gigs, like driving for Uber. Also worth noting: some disability retirement benefits qualify as earned income; however, child support, pensions and unemployment do not. The EIC requirements are based on adjusted gross income, filing status and number of children claimed. The IRS has published 2019 income threshold amounts.
2. Too much investment income impacts EIC eligibility. Renting out a room to make a little extra cash? Rental income equals investment income and that may impact your EIC eligibility. Other investment income includes things like interest, dividends, and passive activity income (such as interest from a bank account). Investment income maximums vary from year to year. For 2019, your investment income must be $3,600 or less in order to claim the EIC.
3. Your filing status matters when claiming EIC. You can claim the credit if you’re married filing jointly, head of household or single. However, you can’t qualify to claim the Earned Income Credit if you’re married filing separately. And, if you get married or divorced from one year to the next, you’ll find the income thresholds have changed. If you’re unsure which filing status is right for your situation, be sure to check with an H&R Block tax pro. They’ll be able to help you consider all the factors and walk you through which one is right.
4. EIC is impacted by the number of children you claim. While the credit is open to anyone who meets the qualifications, the EIC largely benefits families with children. The credit max increases for each child. However, beyond three children, the credit stops increasing. For children of divorced parents, the parent to whom the child(ren) lived with for more than six months of the year would claim the EIC (if they qualify). Sometimes, a grandparent caring for a grandchild may be eligible to claim the Earned Income Credit. However, when multiple generations of a family live together, it can be complicated to determine who can claim EIC for a child.
5. You must file your taxes to claim the EIC. Millions of people miss out on the EIC every year, simply because they didn’t file a tax return. In order to get the EIC, you must file a tax return, even if you do not owe any tax or are not required to file. If you missed the tax filing deadline, you may still be able to file your return within three years of the missed deadline to claim EIC.

It’s important to remember that Earned Income Credit requirements vary from year to year. Determining EIC eligibility can be confusing, but also well worth it if you qualify. If you still have questions, H&R Block tax pros are specially-trained to help and available year-round. Locate an office near you or visit our EIC article for more information.