Investment Income Change for Earned Income Tax Credit

Beginning with 2021, the investment income amount limit for Earned Income Tax Credit (EITC) increases from $3,650 to $10,000. This means that taxpayers who in prior years were disqualified from the EITC due to investment income may now be eligible. Investment income includes (but not an all-inclusive list):

Interest
Dividends
Capital gains
Royalties
Rental income
Passive activity income

If you receive a K-1 there may investment income on it that would disqualify you for the Earned Income Credit. I have had this happen to many clients over the years that received some inheritance or received a K-1 for other reasons. Too bad they did not make the law retroactive. We would have gone back and amended a few returns and helped a few people get extra money during these trying times.

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