Disqualifying Income

What Is Disqualifying Income?

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

Key Takeaways

  • Disqualifying income can prevent an otherwise eligible low- or moderate-income taxpayer from receiving the earned income credit (EITC) when filing their annual income taxes.
  • Disqualifying income consists of 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 (not received as a result of self-employment).
  • For the tax year 2022, income derived from investments cannot exceed $10,300 to qualify for the EITC ($11,000 is the limit for 2023).

Understanding Disqualifying Income

Disqualifying income consists of 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 (not received as a result of self-employment).

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.

The American Rescue Plan of 2021 established an investment income limit of $10,000 or less. This figure is $10,300 for 2022 and $11,000 for 2023.

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

EITC Qualifications

To qualify for the EITC, you 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, and your filing status cannot be married filing separately. Children must meet the relationship, age, residency, and joint return tests, and they can’t be claimed by more than one person.

If you do not have a qualifying child, the child 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.

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 2022, adjusted gross income—in addition to the investment income limits—is required to be less than:

  • $53,057 with three or more qualifying children
  • $49,399 with two qualifying children
  • $43,492 with one qualifying child
  • $16,480 without qualifying children.

Criteria such as adjusted gross income and investment income limits for qualifying for the EITC change annually based on adjustments for inflation and cost of living.

Single filers for tax year 2023 have income limits of:

  • Three or more children—$56,838
  • Two children—$52,918
  • One child—$46,560
  • No children—$17,640

Married taxpayers filing jointly for 2022 can claim the credit if they have a maximum income of:

  • $59,187 with three or more qualifying children
  • $55,529 with two qualifying children
  • $49,622 with one qualifying child
  • $22,610 without qualifying children.

Joint filers for tax year 2023 have income limits of:

  • Three or more children—$63,398
  • Two children—$59,478
  • One child—$53,120
  • No children—$24,210

Income earned for work performed while incarcerated is also disqualifying income when calculating the EITC.

What Would Disqualify You From Earned Income Credit?

The EITC is only given for earned income, so if you only have income from sources other than earnings, you won't qualify. Additionally, income levels over the specified amounts can disqualify you.

What Are the Three Requirements to Qualify for Earned Income Credit?

There are five requirements—you must have worked and earned income under a specific amount and have an investment income of less than $10,300 ($11,000 in 2023). You must also 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 is any income that detracts from your ability to qualify for the Earned Income Tax Credit. This income includes interest, investment income, dividends, royalties, pensions, retirement fund withdrawals, or foreign-earned income.

To qualify for the EITC, you must meet specific income requirements that consider how many qualified children you have.

Article Sources
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  2. Internal Revenue Service. "Earned Income and Earned Income Tax Credit (EITC) Tables."

  3. Internal Revenue Service. "26 CFR 601.602: Tax forms and instructions | Rev. Proc. 2022-38," Page 10.

  4. Internal revenue Service. "26 CFR 601.602: Tax forms and instructions | Rev. Proc. 2021-45," Page 11.

  5. Internal Revenue Service. "Publication 596: Earned Income Credit (EIC)," Pages 4-8.

  6. Internal Revenue Service. "Rev. Proc 2022-38," Page 10.

  7. Internal Revenue Service. "Rev. Proc. 2021-45," Page 10.

  8. Internal Revenue Service. ”Publication 596: Earned Income Credit (EIC),” Pages 9-15.

  9. Internal Revenue Service. ”Publication 596: Earned Income Credit (EIC),” Pages 15-17.

  10. Internal Revenue Service. "26 CFR 601.602: Tax forms and instructions | Rev. Proc. 2021-45," Page 10.

  11. Internal Revenue Service. "Changes to the Earned Income Tax Credit for the 2022 Filing Season."

  12. Internal Revenue Service. "Rev. Proc 2022-38," Page 10.

  13. Internal Revenue Service. "Who Qualifies for the Earned Income Tax Credit (EITC)."

  14. Internal Revenue Service. "Handling the Most Common Errors."

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