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Workers who qualify for the earned income tax credit lose all of it — up to $8,231 — if their investment income for 2026 exceeds $12,200, the IRS limit for returns filed in 2027. Interest earned on savings counts toward that cap, along with dividends and capital gains.
The figures come from Revenue Procedure 2025-32, the IRS document that sets inflation-adjusted tax amounts for 2026. They apply to income earned this year and reported on returns filed next year.
The earned income tax credit is a refundable credit for low- and moderate-income workers, so it can produce a refund even for people who owe no federal income tax. The amount depends on earnings, filing status and the number of qualifying children.
What counts as savings and investment income for the earned income tax credit?
The IRS limit isn’t only about stocks. It adds up several types of income that don’t come from a paycheck and compares the combined total with $12,200.
The IRS counts these sources toward the limit:
- Interest, including what a bank pays on a savings account
- Dividends
- Net capital gains from selling investments
- Royalties and income from renting out personal property, such as equipment, minus related expenses
- Net income from passive activities, which can include some rental real estate
Interest that isn’t subject to income tax still counts. So do interest and dividends a parent reports for a child on the parent’s own return. A capital loss, however, counts as zero and can’t be used to lower the rest of the total.
The balance in a savings account doesn’t count against the cap; only the interest it earns does. Still, larger balances in higher-paying accounts generate more interest, so savers can move toward the limit without selling anything.
Because the cap combines every source, small amounts add up. A few hundred dollars in interest, a modest dividend and a one-time stock sale are measured as one total, not separately.
Why can $1 over the IRS limit cost the entire earned income tax credit?
Most of the credit’s limits work on a sliding scale. Once income passes a set threshold, the credit shrinks a little with each additional dollar until it reaches zero.
The investment income limit has no sliding scale. At $12,200 or less, it has no effect on the credit. At $12,201, the credit is denied in full, no matter how little the worker earned from a job.
That makes it a separate test from the wage-based limits. Those are measured against adjusted gross income — total income minus certain adjustments — or earned income, whichever is higher.
A household can pass the wage test easily and still be disqualified by investment income. In that case, the result is the same as earning too much: no credit at all.
How much earned income tax credit is at stake before filing in 2027?
The amount a worker can lose depends on family size. The full $8,231 is available only to filers with three or more qualifying children, while workers without qualifying children can get up to $664.
Each version of the credit also ends at a different income level, and the cutoff is higher for married couples filing jointly. These are the 2026 amounts set by the IRS:
| Qualifying children | Maximum credit | Credit ends at (married filing jointly) | Credit ends at (all other filers) |
|---|---|---|---|
| None | $664 | $26,820 | $19,540 |
| One | $4,427 | $58,863 | $51,593 |
| Two | $7,316 | $65,899 | $58,629 |
| Three or more | $8,231 | $70,244 | $62,974 |
The tax statements banks and investment firms send each year, known as Forms 1099, report the interest, dividends and sales that count toward the cap. Adding them up before filing shows whether a return stays at or under $12,200.