TurboTax tells me I am eligible for the Earned Income Tax Credit, based on my earned income, but I have NON-TAXABLE disability income too.

[smasher21]

Hello!  TurboTax tells me I am eligible for the Earned Income Tax Credit, but I don't understand why that should be correct. My taxable earned income, investment/interest income, and AGI are all below the limit for EITC, but I have NON-TAXABLE disability income that puts my "total income" higher than the AGI limit for EITC. 

I realize that my non-taxable disability income is not technically included in my official AGI (my non-taxable disability income payer issued me a W-2 with Box 1 blank and Box 12a with the amount of my disability income and the "J" Code for "Nontaxable Sick Pay"), but if I am eligible to file for EITC as TurboTax indicates, doesn't that go counter to what the EITC is for, i.e. workers whose total income (technically measured by AGI) is below the EITC limit?  Can anybody explain what is correct?  I do not want to claim a credit that I should not be claiming, but I don't know how to get this straight in TurboTax.  

Additionally, I have read elsewhere in these forums that I should NOT include in my tax return the W-2 which has a blank Box 1 in TurboTax, however when I do include the W-2 with the non-taxable income just to give TurboTax maximum information about my income, TurboTax still thinks I am entitled to the EITC.

Thank you in advance for any help/references you can provide.

[macuser_22]

A W-2 box 12 code J with nothing in box 1 should not be entered at all.   It has no effect on your tax return one way or the other.  If you are eligible for EIC, then it is because of other income.

You can get to the Earned Credit Interview by entering "eic" (without the quotes) in the Tools -Search Topics box.

Earned Income Credit (EIC) is paid on a bell curve - starts low for a low income, increases to the maximum as income increases, then phases out as income increases still further until it is gone at the maximum income. You only get the maximum EIC if your income is about midway between no income and the maximum income.

EIC is calculated both on the amount of earned income and your AGI and you get the lessor of the two.

EIC will be found on line 18a on the 1040 form.

The credit is calculated on the EIC Worksheet that can be viewed in the forms mode in desktop versions and print all forms and worksheets in the online versions.

2019 Earned Income and Adjusted Gross Income (AGI) must each be less than:
$50,162 ($55,952 married filing jointly) with three or more qualifying children
$46,703 ($52,493 married filing jointly) with two qualifying children
$41,094 ($46,884 married filing jointly) with one qualifying children
$15,570 ($21,370 married filing jointly) with no qualifying children

The credit will vary from $0 to the maximum depending on income and AGI see EIC table.
Tax Year 2019 maximum credit:
$6,557 with three or more qualifying children
$5,828 with two qualifying children
$3,526 with one qualifying child
$529 with no qualifying children


Investment income must be $3,500 or less for the year.

EIC Table page 46
https://www.irs.gov/pub/irs-pdf/i1040gi.pdf


You must be at least 25 if you do not have a qualifying child, and under 65 years of age at the end of 2018.

See IRS Pub 596 for complete information:
http://www.irs.gov/publications/p596/index.html

[smasher21]

@macuser_22, Thank you for all the references for the Earned Income Tax Credit.  I appreciate your detailed approach.

Even after reading the resources, the main unaswered question that I am concerned about, however, is that my total income is higher than the AGI income limit for EITC.  TurboTax seems to think I am entitled to EITC even though I have significant nontaxable income.  Does the fact that my total income is higher than the EITC AGI limit not disqualify me for EITC?  

Obviously, Turbo Tax takes into account only the part of my income that is included in AGI, but it just seems wrong to be eligible for EITC if I have a total income (including the non-taxable disability income) that is higher than the AGI limit for EITC.  Yes, technically, my AGI is below the EITC limit, but considering that EITC is intended for "low-income" workers, should I really be eligible for EITC with a total income that is higher than the AGI limit?  

Thank you in advance for any guidance or references to this question.

[macuser_22]

AGI is *taxable* income.  Non-taxable income does not count.

See:

https://www.irs.gov/pub/irs-pdf/p596.pdf

[Hal_Al]

Having non taxable disability income, apparently, does not disqualify you.

reference: https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/disability-and-earned-in...

The earned income credit is first calculated (actually looked up in a table) on your earned income then it is calculated on your AGI (not your total income). You get the lesser of the two calculated EIC numbers.