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What Is EITC Disqualifying Income?

By

澳洲幸运5官方开奖结果体彩网:Julia Kagan

Updated November 06, 2024

Reviewed by

Lea D. Uradu

Fact checked by Kirsten Rohrs Schmitt

Person trying to make a decision in front of a computer — AsiaVision / Getty Images

Definition

Dividends and pension income are two types oꦏf income﷽ that disqualify taxpayers from the EITC.

What Is Disqualifying Income?

Disqualifying income can prevent an eligible low- or moderate-income taxpayer from receiving the earned income tax credit (EITC) when filing their annual income taxes. If a taxpayer's income level allows them to claim the EITC on a federal income tax return, they may also be eligible to take a similar credit on their state and local returns.

Key Takeaways

Disqualifying income can prevent someone from receiving the earned income credit (EITC).
Disqualifying income includes investment income, such as taxable and tax-exempt interest, dividends, pensions, and annuities, net income from rents and royalties, net capital gains, and net passive income.
For qualifying taxpayers with three or more qualifying children, the maximum Earned Income Tax Credit amount is $7,830 in 2024.

Types of Income

Disqualifying income consists of 澳洲幸运5官方开奖结果体彩网:investment income, such as taxable and tax-exempt interest. It also includes dividends, pensions and annuities, net income from rents and royalties, net capital gains, and net passive income. 澳洲幸运5官方开奖结果体彩网:Earned income also excludes:

Child support and alimony
Retirement income
Social Security benefits
Workers’ compensation benefits
Nontaxable foster care payments
Veterans’ benefits
Unemployment compensation

A child’s tax-exempt interest and dividend income reported on a parent’s return is also considered disqualifying.

Warning

The EITC cannot be claimed if individuals have filed Form 2555 for Foreign Earned Income, which must exclude income earned in foreign countries from gross income.

How to Qualify for EITC

Individuals must have a valid Social Security number by the tax return due date
Be a United States citizen or resident immigrant for the entire year
Tax filing status cannot be married filing separately
Children must meet the relationship, age, residency, and joint return tests, and can’t be claimed by more than one person
For those without a qualifying child, the dependent must be at least age 19 but under age 65, cannot be the dependent of another person, and must have lived in the United States for at least half of the year

Important

For qualifying taxpayers with three or more qualifying children, the maximum Earned Income Tax Credit amount for 2024 is $7,830 and increases to $8,046 in 2025.

EITC Disqualification

Taxpayers are disqualified from receiving the EITC if they receive more than a certain amount of income. For unmarried taxpayers filing individually for 2024, adjusted gross income—in addition to the investment income limits—is required to be less than:

$59,899 with three or more qualifying children
$55,768 with two qualifying children
$49,084 with one qualifying child
$18,591 without qualifying children.

Married taxpayers filing jointly for 2024 can claim the credit if they have a maximum income of:

$66,819 with three or more qualifying children
$62,688 with two qualifying children
$56,004 with one qualifying child
$25,511 without qualifying children.

What Would Disqualify Individuals From Earned Income Credit?

The EITC is only given for earned income, so those with income from sources other than earnings do not qualify.

What Are the Requirements to Qualify for Earned Income Credit?

Individuals must have a valid Social Security number, be a U.S. citizen for the entire year, and not have filed Form 2555 (foreign-earned income).

What Is the Most Common Earned Income Credit Error?

The most common error regarding EITC is claiming a child that does not meet all of the requirements for a qualifying child.

The Bottom Line

Disqualifying income detracts from a taxpayer's ability to qualify for the Earned Income Tax Credit. This income includes interest, dividends, royalties, pensions, retirement fund withdrawals, or foreign-earned income.

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