IRS Publication 596 — Earned Income Credit

Worksheet 2. Worksheet for Line 4 of Worksheet 1 Keep for Your Records 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.)

Rule 7—You Must Have Earned Income This credit is called the “earned income” credit because, to qualify, you must work and have earned income. If you are married and file a joint return, you meet this rule if at least one spouse works and has earned income. If you are an employee, earned income includes all the taxable income you get from your employer. Rule 15 has information that will help you figure the amount of your earned income. If you are self-employed or a statutory employee, you will figure your earned income on EIC Worksheet Bin the Form 1040 instructions. Earned Income Earned income includes all of the following types of income.

1. Wages, salaries, tips, and other taxable employee pay. Employee pay is earned income only if it is taxable. Nontaxable employee pay, such as certain dependent care benefits and adoption benefits, isn’t earned income. But there is an exception for nontaxable combat pay, which you can choose to include in earned income, as explained later in this chapter.

2. Net earnings from self-employment.

3. Gross income received as a statutory employee. Wages, salaries, and tips reported in box 1 of Form(s) W-2. Wages, salaries, and tips you receive for working are reported to you on Form W -2, in box 1. You should report these on Form 1040 or 1040-SR, line 1a. Other types of earned income. Other types of earned income not reported on Form W -2, in box 1, include household employee wages, tip income not reported to your employer, certain Medicaid waiver payments if you choose to include nontaxable payments in earned income for purposes of claiming the EIC, taxable dependent care benefits, employer provided adoption benefits from Form 8839, wages from Form 8919, and other earned income. You should report these on Form 1040 or 1040-SR, lines 1b through 1h.

Nontaxable combat pay election. You can elect to include your nontaxable combat pay in earned income for the EIC. The amount of your nontaxable combat pay should be shown on your Form W -2, in box 12, with code Q. Electing to include nontaxable combat pay in earned income may increase or decrease your EIC. For details, see Nontaxable combat pay in chapter 4.

Net earnings from self -employment. You may have net earnings from self-employment if:

• You own your own business, or

• You are a minister or member of a religious order. Minister’s housing. The rental value of a home or a housing allowance provided to a minister as part of the minister’s pay generally isn’t subject to income tax but is included in net earnings from self -employment. For that reason, it is included in earned income for the EIC (except in the cases described in Approved Form 4361 or Form 4029, later).

Statutory employee. You are a statutory employee if you receive a Form W -2 on which the “Statutory employee” box (box 13) is checked. You report your income and expenses as a statutory employee on Schedule C (Form 1040).

Strike and lockout benefits. Benefits paid to you as strike or lockout benefits, including both cash and the fair market value of other property (other than bona fide gifts), are generally taxable to you. If strike and lockout benefits are taxable, the benefits are generally earned income. You should report the amount of your taxable strike and lockout benefits on Form 1040 or 1040-SR, line 1h. 8 Chapter 1 Rules for Everyone Publication 596 (2025)