With my business loss, plus W-2 wages, plus Hobby income, my AGI is $2,822. I applied for EIC but it says my earned income is -$5,000. How can that be?

[Anonymous]

"hobby" income doesn't count as earned income.   such income gets reported as other income (schedule 1 - line 21) and not on schedule C.  Expenses are supposed to be reported on schedule A (up to the amount of hobby income) - ses irs publication 535.    as other income it is not subject to self-employment taxes 

For tax purposes, a hobby is defined as an activity that you engage in “for sport or recreation, not to make a profit.” Even if you earn occasional income from doing such an activity, the primary purpose must be something other than making a profit.

According to the IRS, an activity is deemed as a business if it makes a profit during at least 3 of the last 5 tax years, including the current year — or at least 2 of the last 7 years if the activities mainly consist of breeding, showing, training, or racing horses.

[Hal_Al]

If your business loss is more than your W-2 wages, then your earned income will be negative.  

The earned income credit is first calculated (actually looked up in a table) on your earned income then it is calculated on your total income (AGI). You get the lesser of the two calculated EIC numbers. See the 2018 EIC table at:

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

What is the nature of your "hobby" income?  Could it qualify as business income and hence earned income?

[cherishc34]

thank you. Yes it can qualify as self employment income. I sell my art and made around $8, 000. I attempted putting it in as self employment income but it changed my K1 business loss from my LLC. I don't understand how since they are two different businesses. No matter how I enter it, It increases my business losses on my K1???

[Hal_Al]

"K1 business loss from my LLC"

What does that mean?  There's no K-1 involved in most small businesses, including single member LLC. 

[Bees]

UPDATE for 2018 due to tax law changes

For tax years after 2017, the IRS doesn't allow you to deduct hobby expenses from hobby income. you must claim all hobby income and are not permitted to reduce that income by any expenses. For tax years prior to 2018, you can deduct expenses as an itemized deduction subject to 2% of your adjusted gross income