A new rule may help you if you experienced job loss or change in income in 2020. To qualify for earned income tax credit, people must have earned income. Generally, earned income includes taxable employee compensation and net earnings from self-employment, as well as certain disability payments.
You can use your 2019 earned income to figure your EITC, if your 2019 earned income was more than your 2020 earned income. The same is true for the additional child tax credit.
For details, see the instructions for Form 1040 .
What is Earned Income?
Generally, earned income includes taxable employee compensation and net earnings from self-employment, as well as certain disability payments.
There are two ways to get earned income:
You work for someone who pays you
You own or run a business or farm
Taxable earned income includes:
- Wages, salaries, tips, and other taxable employee compensation;
- Union strike benefits;
- Disability retirement benefits received prior to minimum retirement age;
- Net earnings from self-employment if:
Nontaxable Combat Pay election. You may elect to include your nontaxable combat pay in earned income for purposes of the EITC. 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 EITC. See Publication 3, Armed Forces Tax Guide, for more information.
Examples of income that are not earned income:
-Pensions or annuities
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