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The Earned Income Credit Investment-Income Limit: Earned Income Credit (2025 IRS Guide)

This guide covers “The Earned Income Credit Investment-Income Limit” within earned income credit. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 596 (2025), Earned Income Credit (EIC), published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Context for these rules

This chapter discusses Rules 1 through 7. You must meet all seven rules to qualify for the EIC. If you don’t meet all seven rules, you can’t get the credit and you don’t need to read the rest of the publication.

If you meet all seven rules in this chapter, then read either chapter 2 or chapter 3 (whichever applies) for more rules you must meet.

The Earned Income Credit Investment-Income Limit

You can’t claim the EIC unless your investment income is $11,950 or less. If your investment income is more than $11,950, you can’t claim the credit.

Use Worksheet 1 in this chapter to figure your investment income.

Worksheet 1. Investment Income

  • Use this worksheet to figure investment income for the EIC when you file Form 1040 or 1040-SR.
Interest and Dividends
1. Enter any amount from Form 1040 or 1040-SR, line 2b 1. _____
2. Enter any amount from Form 1040 or 1040-SR, line 2a, plus any amount on Form 8814, line 1b 2. _____
3. Enter any amount from Form 1040 or 1040-SR, line 3b 3. _____
4. Enter the amount from Schedule 1 (Form 1040), line 8z, that is from Form 8814 if you are filing that form to report your child’s interest and dividend income on your return. (If your child received an Alaska Permanent Fund dividend, use Worksheet 2 in this chapter to figure the amount to enter on this line.) 4. _____
Capital Gain Net Income
5. Enter the amount from Form 1040 or 1040-SR, line 7a. If the amount on that line is a loss, enter -0- 5. _____
6. Enter any gain from Form 4797, line 7. If the amount on that line is a loss, enter -0-. (But, if you completed lines 8 and 9 of Form 4797, enter the amount from line 9 instead.) 6. _____
7. Subtract line 6 of this worksheet from line 5 of this worksheet. (If the result is less than zero, enter -0-.) 7. _____
Royalties and Rental Income From Personal Property
8. Enter any royalty income from Schedule E (Form 1040), line 23b, plus any income from the rental of personal property shown on Schedule 1 (Form 1040), line 8l 8. _____
9. Enter any expenses from Schedule E (Form 1040), line 20, related to royalty income, plus any expenses from the rental of personal property deducted on Schedule 1 (Form 1040), line 24b 9. _____
10. Subtract the amount on line 9 of this worksheet from the amount on line 8. (If the result is less than zero, enter -0-.) 10. _____
Passive Activities
11. Enter the total of any net income from passive activities (such as income included on Schedule E, line 26, 29a (col. (h)), 34a (col. (d)), or 40; or an ordinary gain on Form 4797, line 10). (See instructions below for lines 11 and 12.) 11. _____
12. Enter the total of any losses from passive activities (such as losses included on Schedule E, line 26, 29b (col. (g)), 34b (col. (c)), or 40; or an ordinary loss on Form 4797, line 10). (See instructions below for lines 11 and 12.) 12. _____
13. Combine the amounts on lines 11 and 12 of this worksheet. (If the result is less than zero, enter -0-.) 13. _____
14. Add the amounts on lines 1, 2, 3, 4, 7, 10, and 13. Enter the total. This is your investment income 14. _____
15. Is the amount on line 14 more than $11,950?
□ Yes. You can’t take the credit.
□ No. Go to Step 3 of the Form 1040 instructions for line 27a to find out if you can take the credit (unless you are using this publication to find out if you can take the credit; in that case, go to Rule 7 next).
Instructions for lines 11 and 12. In figuring the amount to enter on lines 11 and 12, don’t take into account any royalty income (or loss) included on line 26 of Schedule E or any income (or loss) included in your earned income or on line 1, 2, 3, 4, 7, or 10 of this worksheet. To find out if the income on line 26 or line 40 of Schedule E is from a passive activity, see the Schedule E instructions. If any of the rental real estate income (or loss) included on Schedule E, line 26, isn’t from a passive activity, enter “NPA” and the amount of that income (or loss) on the dotted line next to line 26.

Worksheet 2. Worksheet for Line 4 of Worksheet 1

  • Complete this worksheet only if Form 8814 includes an Alaska Permanent Fund dividend.
Note: Fill out a separate Worksheet 2 for each Form 8814.
1. Enter the amount from Form 8814, line 2a 1. _____
2. Enter the amount from Form 8814, line 2b 2. _____
3. Subtract line 2 from line 1 3. _____
4. Enter the amount from Form 8814, line 1a 4. _____
5. Add lines 3 and 4 5. _____
6. Enter the amount of the child’s Alaska Permanent Fund dividend 6. _____
7. Divide line 6 by line 5. Enter the result as a decimal (rounded to at least three places) 7. _____
8. Enter the amount from Form 8814, line 12 8. _____
9. Multiply line 7 by line 8 9. _____
10. Subtract line 9 from line 8. Enter the result on line 4 of Worksheet 1 10. _____
(If filing more than one Form 8814, enter on line 4 of Worksheet 1 the total of the amounts on line 10 of all Worksheets 2.)

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.

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