The earned income tax credit (EITC) offers support to low- and moderate-income workers, but certain conditions can make you ineligible. You may be disqualified if your income is too high, if you have significant investment income, or if you are married but filing separately. You also cannot claim the credit without valid Social Security numbers for yourself and any listed dependents, or if you claim the foreign earned income exclusion using Form 2555. If the IRS has denied your EITC in the past due to error or fraud, you may also be blocked from claiming it for a specific period.
A financial advisor can help you determine if you qualify for the EITC and how the credit fits into your broader tax strategy.
How the Earned Income Tax Credit Works
The EITC is a refundable tax credit for low- to moderate-income workers. It reduces the amount of tax you owe and may result in a refund if the credit is larger than your tax bill. The EITC is one of the largest programs aimed at reducing poverty in the U.S. by providing extra income to eligible working individuals and families.
To claim a child for the EITC, the child must meet certain rules. They must be related to you, live with you for more than half the year, and be under 19—or under 24 if they’re a full-time student. If the child is permanently disabled, there’s no age limit. These rules ensure the credit goes to people who are actually supporting children in their household.
The EITC increases with earned income up to a certain point, then gradually phases out as income continues to rise. To claim the credit, you must file a federal tax return, even if you don’t owe taxes. If you’re claiming children, you’ll need to attach Schedule EIC to your return. Free help is available through the IRS’s volunteer income tax assistance (VITA) program.
Qualification Requirements for the Earned Income Tax Credit
To qualify for the EITC, you must have earned income and your adjusted gross income must fall below specific limits. The IRS updates these thresholds each year. For the 2024 tax year, to be filed in 2025, the income limits range from $18,591 to $66,8191, depending on your filing status and how many qualifying children you claim. You must have some earned income to be eligible, even if your adjusted gross income is within the limits. Self-employed individuals must also accurately report all business income and expenses to qualify.
Additionally, your investment income must not exceed $11,600 for the 2024 tax year2. Investment income includes taxable interest, dividends, capital gains, royalties, income from rental of personal property and returns from passive activities. If your investment income goes over this limit, you will not be eligible for the credit.
You must also have a valid Social Security number (SSN) by the due date of your return. This requirement applies to you, your spouse if filing jointly, and any qualifying children listed on the return. Without valid SNN, you cannot claim the credit, even if you meet all other criteria.
Finally, if you claim the foreign earned income exclusion, you are not allowed to claim the EITC in the same tax year. This exclusion lets U.S. taxpayers living abroad exclude certain foreign earnings from U.S. taxation, but it disqualifies you from receiving the EITC.
What May Disqualify You From Using the Earned Income Tax Credit
The EITC provides valuable tax relief for low- to moderate-income workers, but not everyone qualifies. Understanding what may disqualify you can help you determine your eligibility for this valuable tax credit. If you’re uncertain about your qualification status, consulting with a tax professional can provide clarity and help maximize tax benefits.
In general, the following may disqualify you from the EITC:
- Investment income exceeding the limit: The IRS sets a maximum threshold for investment income, which was $11,600 for tax year 2024. This includes interest, dividends, capital gains and rental income from investments. If your passive income exceeds this amount, you are disqualified from claiming the EITC regardless of your earned income level.
- Filing status as “married filing separately”: Taxpayers who choose this filing status typically cannot claim the EITC. This restriction often affects separated couples who haven’t finalized their divorce. To qualify for the credit, you must file as single, head of household, qualifying widow(er) or married filing jointly. (Note: If you have lived apart for at least six months, or are legally separated and have a qualifying child, you can claim the EIC using MFS filing status3.)
- Not having a valid Social Security number: Every person listed on your tax return, including yourself, your spouse and any qualifying children, must have a valid Social Security number that permits employment. ITINs (Individual Taxpayer Identification Numbers) are not sufficient for EITC purposes.
- Foreign earned income: If you’re claiming foreign income or housing exclusions on Form 2555, you cannot claim the EITC. This primarily affects U.S. citizens working abroad who exclude foreign earnings from their taxable income.
- Being claimed as a dependent on someone else’s return: If another taxpayer can claim you (or your spouse, if filing jointly) as a dependent, you cannot claim the EITC. This is the case even if that taxpayer chooses not to claim you.
Bottom Line
Knowing what can disqualify you from the EITC is important if you plan to claim it. Common reasons include earning too much investment income, filing as “married filing separately,” or using the foreign earned income exclusion. You also won’t qualify if you or your dependents don’t have valid Social Security numbers, if someone else claims you as a dependent, or if you’ve filed a fraudulent or incorrect EITC claim in the past.
Tax Planning Tips
- If your financial situation is complex or you’re unsure how much you’ll owe, a financial advisor can help you calculate your tax liability and avoid costly mistakes. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If you want to know how much your next tax refund or balance could be, SmartAsset’s tax return calculator can help you get an estimate.
Photo credit: ©iStock.com/PeopleImages, ©iStock.com/Eva-Katalin, ©iStock.com/insta_photos
Read the full article here
