Publication 51 |
2000 Tax Year |
6. Advance Earned Income Credit (EIC) Payment
An employee who is eligible for the earned income credit (EIC) and
who has a qualifying child is entitled to receive EIC payments with
his or her pay during the year. To get these payments, the employee
must give you a properly completed Form W-5, Earned Income
Credit Advance Payment Certificate. You are required to make advance
EIC payments to employees who give you a properly completed Form W-5,
except that you are not required to make these payments to farmworkers
paid on a daily basis.
Certain employees who do not have a qualifying child may be able to
claim the EIC on their tax return. However, they cannot get
advance EIC payments.
For 2001, the advance payment can be as much as $1,457. The tables
that begin on page 42 reflect that limit.
Form W-5.
Form W-5 states the eligibility requirements for receiving advance
EIC payments. On Form W-5, an employee states that he or she expects
to be eligible to claim the EIC and shows whether he or she has
another Form W-5 in effect with any other current employer.
An employee may have only one Form W-5 in effect with an employer
at one time. If an employee is married and his or her spouse also
works, each spouse should file a separate Form W-5.
For more information, see Form W-5 or Circular E.
How to figure the advance EIC payment.
You must include advance EIC payments with wages you pay to
eligible employees who give you a signed and completed Form W-5. Form
W-5 is effective for the first payroll period ending (or the first
wage payment made without regard to a payroll period) on or after the
date the employee gives you the form. It remains in effect until the
end of the year or until the employee revokes it or gives you a new
one. Employees must give you a new Form W-5 each year.
Figure the amount of advance EIC to include in the employee's pay
by using either the wage bracket or percentage method tables that
begin on page 42. There are separate tables for employees whose
spouses have a Form W-5 in effect.
Note:
During 2001, if you pay an employee total wages of at least
$28,281 you must stop making advance EIC payments to that employee for
the rest of the year.
Paying the advance EIC to employees.
Advance EIC payments are not wages and are not subject to
withholding of income, social security, or Medicare taxes. An advance
EIC payment does not change the amount of income, social security, or
Medicare taxes you withhold from the employee's wages. You add the
advance EIC payment to the employee's net pay for the pay period. At
the end of the year, you show the total advance EIC payments in box 9
on Form W-2. Do not include this amount as wages in box 1.
Employer's returns.
Show the total payments you made to employees on the advance EIC
line (line 10) of your Form 943. Subtract this amount from your total
taxes on line 9 (see the instructions for Form 943). Reduce the
amounts reported on line 15 of Form 943 or on Form 943-A,
Agricultural Employer's Tax Record of Federal Tax Liability, by
any advance EIC paid to your employees.
Generally, you will make the advance EIC payment from withheld
income tax and employee and employer social security and Medicare
taxes. For purposes of deposit due dates, advance EIC payments are
considered deposited on the day you pay wages (including the advance
EIC payment) to your employees. The advance EIC payment reduces first
the amount of income tax withholding, then withheld employee social
security and Medicare taxes, and last the employer's share of social
security and Medicare taxes. For more information, see Circular E.
Required Notice to Employees
You must notify employees who have no income tax withheld that they
may be able to claim a tax refund because of the EIC. Although you do
not have to notify employees who claim exemption from withholding on
Form W-4, Employee's Withholding Allowance Certificate,
about the EIC, you are encouraged to notify any employees whose wages
for 2000 were less than $31,152 that they may be eligible to claim the
credit for 2000. This is because eligible employees may get a refund
of the amount of EIC that is more than the tax they owe.
You will meet the notification requirement if you issue the IRS
Form W-2 with the EIC notice on the back of Copy B, or a substitute
Form W-2 with the same statement. You may also meet the requirement by
providing Notice 797, Possible Federal Tax Refund Due to
the Earned Income Credit (EIC), or your own statement that contains
the same wording.
If a substitute Form W-2 is given on time but does not have the
required statement, you must notify the employee within 1 week of the
date the substitute Form W-2 is given. If Form W-2 is required but is
not given on time, you must give the employee Notice 797 or your
written statement by the date Form W-2 is required to be given. If
Form W-2 is not required, you must notify the employee by February 7,
2001.
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