What EITC rule are you thinking that disqualifies them, as you don't provide enough details for me to say you are correct. And as far as state, some states have different EITC rules than federal. here is link to IRS rules for TP's without children. https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/earned-income-and-earned...

To me it is not earned income because it is Sub S chapter health insurance premiums and not wages per say. Because that is how the irs wants it reported.

What you, and I think does not matter. Only what the law is what matters. Lookup IRC 26 section 32

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@Wick wrote:

It is not like they earned it.

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Did they not perform any work for the business?

The only so called income is from the S corporation paying Health Insurance Premiums for the only shareholder of the S Corp. That is why I would not consider this earned income. I just to make sure you understand where I am coming from. The K-1 has a loss of lets say ( 60,000) so the returns shows a loss of 50k or so. But nothing was earned it was payments that the S Corp made for health insurance.

Thanks

duplicate post - removed

if you can get past the odor of lutefisk you might want to look at part IV of the information worksheet. There's a quick zoom to secret hidden worksheet to enter amounts not considered earned income

Thanks I do not think its that time of the year for that aromatic eatings. I have never tried it so I will have to take your word on that subject. I looked over your suggestion and did not find anything to subtract it out and it would not let me put negative  numbers in the boxes. 

Thanks for having a sense of humor in these great times.

I think its this button you want, then on Line 2A of that worksheet you enter the amount that isnt earned.

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@Wick wrote:

That is why I would not consider this earned income.

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You don't consider fringe benefits to an employee as part of their compensation?  Any thought why the IRS specifically tells us to report taxable fringe benefits as compensation?

What IRS or law guidance leads you to that thought?

Thanks Lisa, I looked here and the number that comes across is the wages number because it is part of the W-2. Now I can put that number on that screen but it is Medicaid Waiver Payments Received as non taxable and it zero's it out but that is not what it was so I am kinda stuck. I just do not want the IRS coming back  and wanting the payment plus interest later on. So now I do not know what I am going to do.

Thanks again.