The advance earned income tax credit: IRS education effort picks up speed

Tax Executive, The, Jan-Feb, 1995

* Workers who hold more than one job * Workers with a working spouse * Workers who get married during the year * Workers whose earned income increases a lot during the year

How Does a Worker Sign Up

for the Advance EITC?

Getting advance EITC payments is not difficult. Eligible workers fill out a Form W-5, which is captioned "Earned Income Credit Advance Payment Certificate," and give the bottom part to their employer. The W-5 is available from employers or can be ordered free by calling 1-800-TAX-FORM.

Eligible workers can file a W-5 at any time during the year, but they must file a new W-5 at the beginning of each year to continue getting the EITC in their paychecks.

If workers are planning to get married or expect a large increase in income during the year, they should ask their employer to stop putting advance EITC payments in their paychecks. To do this, workers need to file a new W-5 with their employer indicating they do not want to receive advance payments anymore.

Workers who receive advance payments during the year must file a tax return after the end of the year and include the total amount received in advance payments. They must also complete Schedule EITC and attach it to their tax return.

Some Workers Are Not Eligible

to Receive Advance Payments

Some workers who are eligible for the EITC are not allowed to get advance payments, including workers without qualifying children, farmworkers who get paid day by day, and people with no Social Security and Medicare taxes withheld from their pay.

What Is the Employer's Role?

Advance payments do not cost employers money. Employers simply subtract the advance payments they have added to their worker's paycheck from what they would otherwise deposit with the IRS. Most employers with automated payroll systems can easily program advance payments into their systems.

Some employers may not be aware of the advance EITC payment option. But under federal law, any eligible employee who files a W-5 with an employer must be given advance payments. Employers are not required to make sure employees are eligible for the EITC; that is the employee's responsibility. For more information, employers should refer to the IRS Employer's Tax Guide, Circular E.

What Else Can Employers Do?

* Send information to all their employees. Both public and private sector employers can include an EITC envelope stuffer or brochure with workers' W-2 forms. EITC information can also be sent with employee paychecks in December, January, February, or March.

* Alert workers to the availability of advance EITC payments. Advance payment of the EITC increases the size of workers' paychecks at no cost to the employer.

* Include information in employee newsletters. For a sample newsletter article on the EITC, contact the Center on Budget and Policy Priorities (202/408-1080).

* Make information available at the worksite. Employers can leave flyers or hang posters near the time clock, in the staff lounge, or in office waiting rooms.

* Inform workers about state earned income credits. Currently, workers in Minnesota, New York, Vermont, and Wisconsin can get a refundable state EITC in addition to their federal EITC.