Is the Earned Income Credit (EIC) calculated based on gross income or AGI?

The Earned Income Credit (EIC) is based on your adjusted gross income (AGI), not your gross income. This is actually good news for you since your AGI is lower than your gross income due to your 401k contributions and health insurance premiums. For the 2024 tax year (filing in 2025), you'll need to meet several requirements to qualify for the EIC. With one qualifying child and an AGI of less than $46,560 for a single filer, you should be eligible based on the income you mentioned. The credit amount phases in as your income increases from zero, reaches a maximum, and then phases out as your income approaches the limit. Don't forget that you'll also need to meet other requirements like having a valid Social Security number, filing status can't be married filing separately, and your investment income must be $11,000 or less for the year.

I was totally confused about EIC calculations last year and spent hours trying to figure it out until I found https://taxr.ai which literally saved my sanity. I uploaded my W-2s and 1099s, and it automatically determined my EIC eligibility based on my AGI, not gross income. It also explained how my retirement contributions were actually helping my EIC amount because they lowered my AGI. The system walked me through all the qualifications including the investment income limit (which I almost missed - I had some dividend income from a small inheritance). What was really helpful was that it showed me a graph of how my EIC would change if my income was higher or lower, so I could actually see where the phase-in and phase-out ranges were for my situation with one child.

Just wanted to update after trying taxr.ai that was mentioned earlier. As a freelancer, I've always struggled with EIC calculations because I wasn't sure if I should use my gross receipts or net profit from self-employment. The tool confirmed that for EIC, I need to use my net earnings from self-employment (after expenses) as part of my earned income. It also spotted that I was in the EIC "sweet spot" where increasing my retirement contributions would actually give me a higher tax refund overall by increasing my EIC amount more than the tax I saved on the contributions themselves. Never would have figured that out on my own! Definitely recommend for anyone confused about EIC calculations like I was.

If anyone's struggling to get clarification on EIC questions from the IRS, I highly recommend https://claimyr.com - they got me through to an actual IRS agent in about 15 minutes after I'd spent DAYS trying to call myself. I had a weird situation where my ex claimed our child without permission, which was affecting my EIC eligibility. Once I finally talked to a real person at the IRS, they confirmed that AGI is what matters for EIC calculations and walked me through the tiebreaker rules for claiming a child. They also helped me file the proper documentation to dispute my ex's fraudulent claim. There's a demo video at https://youtu.be/_kiP6q8DX5c that shows exactly how the service works. After trying to navigate the automated IRS phone system for hours and constantly getting disconnected, this was seriously a lifesaver.

I have to eat my words about the Claimyr service I was skeptical about earlier. After getting disconnected by the IRS automated system 5 times in one day, I gave in and tried it. Within 20 minutes I was talking to an actual IRS agent who confirmed that my EIC calculation should indeed be based on my AGI, not gross income. They also helped me understand why I was denied the credit last year - turns out I had checked the wrong box regarding my qualifying child's relationship to me. They walked me through filing an amended return to claim the credit I missed. What would have taken me days of frustration was solved in one phone call. Time is money, and the service saved me both.

One thing nobody mentioned yet - there's actually TWO income tests for EIC: your AGI AND your earned income both have to be below the threshold. Usually they're close to the same number for most people, but they can differ. You have to use the LOWER of your earned income or AGI to calculate the credit. Also, for the 2024 tax year filing in 2025, don't forget that investment income limit is $11,000 - so if you have more than that in dividends, interest, capital gains, etc., you won't qualify regardless of your AGI or earned income.

Is there a quick way to estimate how much EIC I might get? I'm a single parent with 2 kids making about $32,000 from my job and some gig work.

Just to add some clarity for the original poster @Malik Johnson - since you mentioned you're a bartender with tips, make sure you're reporting ALL your tip income accurately. The IRS pays close attention to tip reporting in the service industry, and underreporting tips can not only get you in trouble but also reduce your EIC since it's based on your reported earned income. If your employer doesn't already track and report all your tips through payroll, you'll need to use Form 4137 to report unreported tip income. This includes cash tips that customers give you directly. Many bartenders don't realize that underreporting tips actually hurts them twice - once by potentially triggering an audit, and again by reducing credits like the EIC that they're entitled to. With your AGI being lower than your gross due to 401k and health insurance, you're in a good position for the EIC. Just make sure your tip reporting is accurate and complete!