Why is unemployment affecting EITC ?

[Hal_Al · Accepted solution]

TurboTax is doing it correctly.

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://taxmap.irs.gov/taxmap/instr/i1040gi-015.htm

*your earned income + your unemployment + any other income

[jonesdar35]

Obviously the amounts come from the EITC table,  however that is not the question.. Let me clarify.  Unemployment is considered taxable by the federal government,  but unemployment is not supposed to be added to income to affect eligibilty for EITC. So why does it does not remove unemployment income when calculating EITC eligibility income?

[Hal_Al]

The statement "unemployment is not supposed to be added to income to affect eligibilty for EITC"  is wrong (some of the time).
ALL your income affects eligibility for EITC, if your total income is over a certain level (see line 5 on the worksheet)

Use the EITC worksheet to calculate the EITC yourself. This is the same worksheet Turbotax uses. <a rel="nofollow" target="_blank" href="https://taxmap.irs.gov/taxmap/graphics/24811v07.htm">https://taxmap.irs.gov/taxmap/graphics/24811v07...>

[jonesdar35]

Again.. Not correct turbo tax even states the following....

Recommended Answer
If you are referring to claiming the Earned Income Credit, you have to meet the requirements listed below.

NOTE: Earned income is classified as any money that you work for, as opposed to passive income like interest, dividends, or rental income if you're not in the business of renting out properties. Worker's comp, unemployment, and pensions don't count as earned income. More on this can be found here What is earned income?

[TaxGuyBill]

Read Hal_Al's answer again and look at the worksheet he gave you.  In most cases:

Step #1:  The tentative credit is calculated using your Earned income.
Step #2:  The tentative credit is calculated using your AGI (which includes your unemployment).
Step #3:  Your ACTUAL credit is the LOWER of #1 and #2.

[Hal_Al]

What you're suggesting, using an example,  is that somebody (single, 1 kid)  with $40,000 wages is not eligible for EITC but somebody with $30,000 wages plus $10,000 unemployment is eligible.