Earned Income Tax Credit (EITC)

The following are informational items are available from IRS for employers:

• Notice 1015, Have You Told Your Employees About the Earned Income Credit (EIC)?, explains the requirement for employers to notify their employees about the EITC.

• Notice 797, Possible Federal Tax Refund Due to the Earned Income Credit (EIC), is a payroll stuffer which employers may use to notify their employees about the EITC.

• Publication 962, The Tax Break for Hard Working People, is a payroll stuffer about the EITC. This publication is too large for download. You can order paper copies by calling 1-800-829-3676.

Advance Earned Income Tax Credit

Are you interested in providing your employees the benefit of increased take home pay at virtually no cost to your enterprise? The Internal Revenue Service (IRS) has a program called the advance Earned Income Tax Credit (advance EITC) that does just that. Employees can get extra money in their paychecks rather than having to wait until they file their tax return.

This is how it works. You make the advance payments to your employees from the employment taxes you would normally deposit or send to the IRS. The amount is paid to the employees - with no income tax withheld. You then claim the amount as a timely payment on your quarterly employment tax form (Form 941).

Signing up for the advance EITC payment is easy. All your employees need to do is give you a Form W-5, Earned Income Credit Advance Payment Certificate. You do not need to send Form W-5 to IRS. Just keep the form on file.

Over 15 million workers may qualify for this paycheck "boost." To qualify for advance EITC, working parents or grandparents must have at least one qualifying child and their annual income for 2001 must be less than approximately $28,000, or less than approximately $31,152 with two or more qualifying children. For many workers receiving the advance EITC each paycheck can make a difference in buying groceries, paying rent, and meeting other daily needs. For example, an employee who earns minimum wage would see their take home pay increased by over $100 each month!

For Additional Information

• Tax Topic 601 contains information about the Earned Income Credit.

• Tax Topic 604 contains information about the advance Earned Income Credit.

• Tax Topic 754 contains information about Form W-5.

• Publication 15, Circular E, Employer's Tax Guide, contains information on how to apply advance EITC to your employees' paychecks.

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