EITC investment income limit and Worksheet 1 explained

Rule 6 in one sentence

Publication 596 says you cannot claim the credit unless your investment income is $11,950 or less, and if it is more than $11,950 you cannot claim the credit at all. It is a cliff, not a phase-out. That differs from the earned income and AGI limits, which are different dollar amounts depending on filing status and the number of qualifying children. The investment income cap is the same $11,950 for every taxpayer in the 2025 edition, single or married.

What goes into Worksheet 1

The worksheet has 15 lines in five groups. Interest and dividends: line 1 is tax-exempt interest from line 2b of Form 1040; line 2 is taxable interest from line 2a plus any Form 8814, line 1b; line 3 is dividends from line 3b; line 4 is the child's interest and dividends from Schedule 1, line 8z, if you file Form 8814. Capital gain net income: line 5 is Form 1040, line 7a, entering zero for a loss, and line 6 is any gain from Form 4797, line 7; line 7 is line 5 minus line 6, not below zero. Royalties and personal-property rental: line 8 is royalty income from Schedule E plus rental of personal property from Schedule 1, line 8l, and line 9 is the related expenses; line 10 is the difference, not below zero. Passive activities: line 11 is net income from passive activities and line 12 is passive losses; line 13 combines them, not below zero. Line 14 adds lines 1, 2, 3, 4, 7, 10 and 13, and line 15 asks whether the total is more than $11,950.

Things people miss

Tax-exempt interest counts, even though it is not taxable; line 1 is exactly that. A capital loss does not reduce interest or dividends: the worksheet floors line 5 at zero and line 7 at zero. Passive income uses a separate floor, so a rental real estate loss that is a passive loss can offset passive income on lines 11 to 13 but cannot offset your dividends. Royalty and personal-property rental income are netted only against their own expenses on lines 8 to 10. Alaska Permanent Fund dividends received by a child you report on Form 8814 are handled by Worksheet 2, which prorates the dividend out of line 4. The instructions for lines 11 and 12 say not to take into account royalty income or loss on Schedule E line 26 or income already included in earned income or on lines 1, 2, 3, 4, 7 or 10.

Worked example from the publication

The Grey family in chapter 6 have a $525 interest income and nothing else on investments. Line 2 is $525, every other line is zero, so line 14 is $525. That is not more than $11,950, so they answer no to the investment question and proceed. Try a different case. A single worker has $3,000 of dividends, $5,000 net long-term gain on Form 1040 line 7a, $2,000 of tax-exempt interest and a $1,500 passive rental loss. Lines 3, 5 and 1 add up to $10,000, line 13 is zero because a loss floors at zero, and the total is $10,000. They pass. Add a $2,500 net royalty and the total becomes $12,500, over $11,950, and the credit is gone entirely, even though their earned income is small.

Who has to use Worksheet 1

The publication says certain filers must use Worksheet 1 instead of Step 2 in the Form 1040 instructions. That includes anyone filing Schedule E, reporting rental income from personal property not used in a trade or business, reporting income from Form 8814 on Schedule 1, line 8z, having income or loss from a passive activity, or reporting an amount on Form 1040 line 7a that includes an amount from Form 4797. Otherwise the Form 1040 instructions may have everything you need. It is also a good idea to confirm other tests with the EITC estimator and the Social Security number rules.

What this page cannot do

The calculator mirrors the arithmetic and the floors in Worksheet 1; it cannot tell you which Schedule E line your number belongs on or whether a rental activity is passive. If you are unsure, use the Schedule E instructions the publication points to, or ask a preparer. And remember that the cap is only one of the rules for everyone: AGI limits, a valid SSN, earned income and filing status all still apply.

Sources

• IRS Publication 596, Earned Income Credit (EIC) (2025): Rule 6, Your Investment Income Must Be $11,950 or Less: Worksheet 1 (lines 1 to 15 and the instructions for lines 11 and 12), Worksheet 2; Do I Need This Publication?; chapter 6, Example 2 (Cameron and Jordan Grey). Read November 2, 2026.

Edition read: Publication 596 (2025), Earned Income Credit (EIC), for use in preparing 2025 returns. Dollar amounts and dates on this page are the 2025 figures printed in that edition; they change by tax year, so check the current publication and form instructions for the year you file. This page summarizes the publication and does not replace it.