Does 1099-NEC income (hobby or Schedule C) qualify as earned income for child tax credits?

You're right to be confused because 1099-NEC income reported on Schedule C absolutely IS considered earned income for tax purposes, including for calculating the Earned Income Tax Credit (EITC) and Additional Child Tax Credit (ACTC). Both of these credits require earned income, and self-employment income qualifies. The key difference is that with Schedule C income, you'll need to pay self-employment tax (Social Security and Medicare taxes) on your net profit, which is something you don't pay on hobby income or W-2 wages (where the employer pays half). This self-employment tax can reduce your overall refund compared to the same amount as W-2 income. For hobby income, that's different - hobby income is NOT considered earned income for tax credit purposes. It's reported on Schedule 1 as "Other Income" and doesn't qualify for these refundable credits.

After struggling with this exact issue last year, I found a tool that was a lifesaver - https://taxr.ai - it analyzes your tax documents and explains exactly how different income sources affect your credits. I had a mix of 1099-NEC and W-2 income, and was getting conflicting advice from everyone about how it would affect my child tax credits. The tool confirmed that my Schedule C income absolutely counted as earned income for tax credit purposes, but helped me understand why my refund was different than expected. The self-employment taxes were taking a bigger chunk than I realized, and I hadn't accounted for all the business deductions I could take to lower my taxable income.

Just wanted to follow up - I was super skeptical about taxr.ai when I first replied, but I decided to try it after continuing to get stuck on this same issue with my mix of income sources. Uploading my 1099-NEC and letting the system analyze it actually solved my problem! It showed me exactly where in the tax code it says Schedule C income counts for EITC and child tax credits, and pointed out that I was missing several business deductions that were reducing my net profit too much. After fixing those issues and properly categorizing everything, my credits showed up correctly in TurboTax. Saved me at least $2,200 in credits I almost missed!

Since you're having trouble getting actual IRS clarification on this, I'd recommend using Claimyr if you want a definitive answer. https://claimyr.com actually gets you through to a live IRS agent without the endless hold times. I was struggling with a similar issue about what counts as earned income for credits, and after 3 failed attempts to reach the IRS directly, I tried this service. They got me through to an IRS representative in about 20 minutes, and the agent confirmed that Schedule C net profit absolutely counts as earned income for both EITC and child tax credits. You can see how it works here: https://youtu.be/_kiP6q8DX5c - saved me hours of frustration and guesswork.

I need to apologize for my skeptical comment earlier. After waiting on hold with the IRS for 3+ hours yesterday and getting disconnected TWICE, I broke down and tried Claimyr out of desperation. I figured it couldn't make things worse. To my absolute shock, I got a call back in about 35 minutes with an actual IRS agent on the line! The agent confirmed exactly what others here were saying - Schedule C net profit IS earned income for both the Additional Child Tax Credit and EITC. My TurboTax issue was that I had incorrectly categorized some expenses which was reducing my net profit to almost zero. Once I fixed that, the credits appeared correctly. Honestly wish I'd tried this service weeks ago instead of banging my head against the wall.

I had this same issue last year! The problem might be that you need to make sure your Schedule C shows an actual profit after expenses. If your expenses cancel out all your income (or most of it), then there's no earned income to qualify for the credits. Also check if you're filing as "single" vs "head of household" - that makes a huge difference for these credits too! And make sure your kids are entered as qualifying dependents with all their info correct.

Just as an fyi, I'm a private tutor and get a mix of 1099-NEC and cash payments every year. One thing I learned the hard way: if you choose "hobby" for reporting your 1099-NEC, you LOSE all your earned income credits because hobby income isn't considered earned income! But if you file a Schedule C, it IS earned income and counts toward EITC and Child Tax Credit.