How the IRS Calculates the Earned Income Tax Credit Using the EIC Worksheet
The Earned Income Tax Credit is calculated through a worksheet that looks up your earned income and AGI separately in the IRS's EIC Table, then applies the smaller result as your credit.
The Earned Income Tax Credit isn't a flat dollar amount — it's calculated through a specific IRS worksheet that runs your earned income and your adjusted gross income (AGI) through separate lookups, then gives you the smaller result. If you're claiming the credit with one, two or three qualifying children, Schedule EIC is where you report each child's identifying information, and the EIC Worksheet in the Form 1040 instructions is where the actual math happens. Here's how the pieces fit together, using a single filer with two qualifying children as an example.
What Schedule EIC actually asks for
For each qualifying child, up to a maximum of three, you list the child's name, Social Security number, year of birth, relationship to you, and the number of months the child lived with you in the United States during the year. If you have more than three qualifying children, you still only list three on the schedule, since a maximum of three children can be listed even if the taxpayer has more than three qualifying children. The actual dollar credit comes later, from either the EIC Worksheet or the IRS's own calculation if you ask for it.
Two eligibility checks before any math
Before you get anywhere near a credit amount, the Form 1040 instructions walk you through gating questions, starting with Step 1 and Step 2 of the worksheet, with further steps following to pin down your qualifying children and figure earned income. Step 1 asks whether your AGI is under the completed phaseout amount for your number of qualifying children who have valid Social Security numbers and lived with you, and your filing status — for two such qualifying children, that's $57,310 for single, head of household or qualifying surviving spouse filers, or $64,430 if married filing jointly. Step 2 checks your investment income: if it exceeds $11,950 for 2025, you cannot claim the EIC at all, no matter how low your earned income or AGI is. Investment income for this test includes interest, dividends, and certain other items added together on the worksheet. Only after clearing Steps 1 and 2 do you move on to figuring your earned income and running the EIC Worksheet.
The rates behind the credit
For a filer with two qualifying children, the credit equals 40% of earned income, up to a capped earned income amount, after which it plateaus at the maximum. Once your AGI or earned income, whichever is greater, exceeds a threshold phaseout amount, the credit shrinks at a 21.06% rate until it hits zero. These percentages are fixed by statute and don't change year to year; what does change annually, by IRS revenue procedure, are the dollar thresholds they apply to. For 2025, with two qualifying children, the earned income amount (where the credit maxes out) is $17,880 and the maximum credit is $7,152; for a single, head of household or qualifying surviving spouse filer, the threshold phaseout amount is $23,350 and the completed phaseout amount is $57,310. In plain terms: the earned income amount is where you hit the top credit, the threshold phaseout amount is where reductions start, and the completed phaseout amount is where the credit disappears entirely.
Why the maximum credit for two children lands at $7,152
Under the Internal Revenue Code, a filer with two qualifying children earns EIC at a 40% credit rate on earned income, applied up to the earned income amount. Multiplying that 40% rate by the $17,880 earned income amount gives $7,152, which is exactly the maximum EIC published for two qualifying children in 2025.
- earned income: 17880
- rate: 0.4
- Formula: earned income*rate
- Result: 7152
Worked example: how the earned income and AGI lookups interact
Picture a single filer with two qualifying children whose earned income already sits at or above the $17,880 earned income amount for two qualifying children, and whose AGI, after adding a small amount of interest income, comes out a bit higher than earned income. Earned income at or above $17,880 produces the maximum $7,152 credit only up to the point where AGI or earned income, whichever is greater, passes the $23,350 threshold phaseout amount, after which the credit shrinks and eventually reaches zero at $57,310. The IRS's own published example shows exactly this kind of two-step comparison: a married couple with two qualifying children had earned income of $33,030, which the EIC Table translated into a $6,614 credit, but their AGI of $33,555 was looked up separately and produced a lower $6,498 credit, and because AGI exceeded earned income, the smaller AGI-based figure is what actually went on their return. The same mechanical rule applies to a single filer: you look up earned income in the EIC Table, you separately look up AGI, and whichever lookup gives the lower number is your credit.
Document anatomy: the EIC Worksheet's building blocks
- Step 1 (AGI limit check): confirms AGI is below the completed phaseout amount for your number of qualifying children who have valid Social Security numbers and lived with you, before you proceed, with a higher completed phaseout amount available if you're married filing jointly
- Step 2 (investment income check): totals investment income and disqualifies the credit entirely if it tops $11,950 for 2025
- Earned income lookup: your earned income is located in the EIC Table to find a candidate credit amount
- AGI lookup: your AGI is located separately in the same table to find a second candidate credit amount
- Final credit: the smaller of the two candidate amounts becomes the credit entered on Form 1040
- Schedule EIC attachment: lists each qualifying child's name, Social Security number, year of birth, relationship and number of months the child lived with you in the United States during the year, for up to a maximum of three qualifying children
Key 2025 thresholds for two qualifying children
| Threshold | Amount | What it means |
|---|---|---|
| Earned income amount | $17,880 | Earned income at or above this level produces the maximum credit |
| Maximum credit | $7,152 | The highest EIC payable for two qualifying children in 2025 |
| Threshold phaseout amount | $23,350 | Once AGI or earned income (whichever is greater) passes this point, the credit starts shrinking |
| Completed phaseout amount | $57,310 | AGI or earned income at or above this level eliminates the credit entirely |
| Investment income limit | $11,950 | Exceeding this disqualifies the EIC regardless of earned income or AGI |
2025 figures for a filer with two qualifying children, filing status other than married filing jointly, unless noted.
How to work through the calculation yourself
- Confirm your AGI is below the completed phaseout amount for your number of qualifying children and filing status
- Add up your investment income and confirm it doesn't exceed $11,950 for 2025, or you can't claim the credit at all
- Fill out Schedule EIC with each qualifying child's name, Social Security number, year of birth, relationship, and the number of months the child lived with you in the United States, for up to three children
- Look up your earned income in the EIC Table to get one candidate credit amount
- Look up your AGI in the same table to get a second candidate credit amount
- Enter the smaller of the two amounts as your EIC on Form 1040, or write 'EIC' on the dotted line next to line 27a and attach Schedule EIC to have the IRS calculate it for you
Key takeaways
- The credit is the smaller of two separate lookups — one using earned income, one using AGI — not a single calculation
- For two qualifying children in 2025, the credit maxes at $7,152 once earned income reaches $17,880, and fully phases out by $57,310 in AGI or earned income for most filing statuses
- Investment income above $11,950 blocks the EIC entirely for 2025, regardless of how low your earnings are
- Schedule EIC only collects child information; it doesn't calculate the dollar credit itself
- You can let the IRS compute the credit for you by writing 'EIC' next to line 27a, as long as you still attach a completed Schedule EIC
Frequently asked questions
Why would my AGI give a different credit than my earned income?
Because the EIC Table applies the phaseout based on whichever of AGI or earned income is greater, a higher AGI from investment income, interest, or other additions can push you further into the phaseout range even if your earned income alone would have produced a bigger credit, which is exactly what happened in the IRS's own published example where AGI of $33,555 produced a lower credit than earned income of $33,030.
Can I claim the EIC with four or more qualifying children?
Schedule EIC only has space for three children's information, since the credit calculation treats three or more qualifying children the same way for 2025, with the same earned income amount and phaseout figures applying once you have three or more.
What happens if my investment income is just over the limit?
If your investment income for 2025 exceeds $11,950, you cannot claim the EIC at all for that year, regardless of how low your earned income or AGI is, so there's no partial credit or reduced amount in that situation.
Do I have to do the worksheet math myself?
No. You can enter 'EIC' on the dotted line next to Form 1040 line 27a and the IRS will calculate the credit for you, though if you have a qualifying child you must still complete and attach Schedule EIC with that child's information.
Are the 40% and 21.06% rates the same every year?
The credit rate and phaseout rate for two qualifying children are fixed in the statute and don't change annually; what changes each year through IRS revenue procedure are the dollar amounts those rates apply to, such as the earned income amount and the phaseout thresholds.
Sources
Don't miss the next review. Tuesdays, with the math.
Free. Cancel from any email. Includes offers from our partners.
Keep reading
How Schedule 8812 Calculates the Child Tax Credit: Phase-Out Math and Refundable Credit
Schedule 8812 computes your Child Tax Credit by multiplying your qualifying children by $2,200, checking whether income triggers a phase-out, and determining how much of the credit is refundable as the Additional Child Tax Credit.
How Form 6251 Calculates the Alternative Minimum Tax: Line-by-Line Walkthrough
Form 6251 computes your Alternative Minimum Tax by starting with regular taxable income, adding back adjustments and preferences like state and local tax deductions and incentive stock option spreads, then applying a separate exemption and rate structure to determine if you owe more tax under.
How Form 8959 Calculates Additional Medicare Tax: The IRS's Worked Example
Form 8959 walks through the IRS's calculation of Additional Medicare Tax using a five-part structure that tests wages, self-employment income, and RRTA compensation separately before combining them for a total in Part IV.