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Worksheet 2. Worksheet for Line 4 of Worksheet 1 Keep for Your Records Complete this worksheet only if Form 8814 includes an Alaska Permanent Fund dividend. Note. Fill out a separate Worksheet 2 for each Form 8814. 1. Enter the amount from Form 8814, line 2a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.

2. Enter the amount from Form 8814, line 2b . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.

3. Subtract line 2 from line 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.

4. Enter the amount from Form 8814, line 1a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.

5. Add lines 3 and 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.

6. Enter the amount of the child's Alaska Permanent Fund dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.

7. Divide line 6 by line 5. Enter the result as a decimal (rounded to at least three places) . . . . . . . . . . . . . . . . . . . . . . . 7.

8. Enter the amount from Form 8814, line 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.

9. Multiply line 7 by line 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.

10. Subtract line 9 from line 8. Enter the result on line 4 of Worksheet 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10. (If filing more than one Form 8814, enter on line 4 of Worksheet 1 the total of the amounts on line 10 of all Worksheets 2.) Example—Completing Worksheet 2. Your 10-year-old child has taxable interest income of $400, an Alaska Permanent Fund dividend of $1,000, and ordinary dividends of $1,100, of which $500 are qualified divi- dends. You choose to report this income on your return. You enter $400 on line 1a of Form 8814, $2,100 ($1,000 + $1,100) on line 2a, and $500 on line 2b. After completing lines 4 through 11, you enter $240 on line 12 of Form 8814 and line 8z of Schedule 1 (Form 1040). On Work- sheet 2, you enter $2,100 on line 1, $500 on line 2, $1,600 on line 3, $400 on line 4, $2,000 on line 5, $1,000 on line 6, 0.500 on line 7, $240 on line 8, $120 on line 9, and $120 on line 10. You then enter $120 on line 4 of Work- sheet 1. Rule 7—You Must Have Earned Income This credit is called the “earned income” credit because, to qualify, you must work and have earned income. If you are married and file a joint return, you meet this rule if at least one spouse works and has earned income. If you are an employee, earned income includes all the taxable in- come you get from your employer. Rule 15 has information that will help you figure the amount of your earned income. If you are self-employed or a statutory employee, you will figure your earned in- come on EIC Worksheet B in the Form 1040 and 1040-SR instructions. Earned Income Earned income includes all of the following types of in- come. 1. Wages, salaries, tips, and other taxable employee pay. Employee pay is earned income only if it is taxa- ble. Nontaxable employee pay, such as certain de- pendent care benefits and adoption benefits, isn't earned income. But there is an exception for nontaxa- ble combat pay, which you can choose to include in earned income, as explained later in this chapter. 2. Net earnings from self-employment. 3. Gross income received as a statutory employee. Wages, salaries, and tips. Wages, salaries, and tips you receive for working are reported to you on Form W-2, in box 1. You should report these on Form 1040 or 1040-SR, line 1. Nontaxable combat pay election. You can elect to in- clude your nontaxable combat pay in earned income for the earned income credit. The amount of your nontaxable combat pay should be shown on your Form W-2, in box 12, with code Q. Electing to include nontaxable com- bat pay in earned income may increase or decrease your EIC. For details, see Nontaxable combat pay in chapter 4. Net earnings from self-employment. You may have net earnings from self-employment if: • You own your own business, or • You are a minister or member of a religious order. Minister's housing. The rental value of a home or a housing allowance provided to a minister as part of the minister's pay generally isn't subject to income tax but is included in net earnings from self-employment. For that reason, it is included in earned income for the EIC (except in the cases described in Approved Form 4361 or Form 4029 below). Statutory employee. You are a statutory employee if you receive a Form W-2 on which the “Statutory em- ployee” box (box 13) is checked. You report your income and expenses as a statutory employee on Schedule C (Form 1040). Strike benefits. Strike benefits paid by a union to its members are earned income. Page 8 Chapter 1 Rules for Everyone