Advance Payment of Earned Income Credit

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 usually required to make advance EIC payments to employees who give you a properly completed Form W-5, but you are not required to make these payments to farm workers paid on a daily basis.

The payment is added to the employee's pay each payday. It is figured from tables in Circular A. You reduce your liability for income tax withholding, social security tax, and Medicare tax by the total advance EIC payments made. For more information, see Circular A.

Notification. You must provide notification about the EIC to each employee who worked for you at any time during the year and from whom you did not withhold any income tax. However, you do not have to notify employees who claim exemption from withholding on Form W-4.

You meet the notification requirement by giving each employee any of the following.

• Form W-2, which contains the notification on the back of Copy B.
• A substitute Form W-2 with the exact EIC wording shown on the back of copy B of Form W-2.
• Notice 797, Possible Federal Tax Refund Due to the Earned Income Credit (EIC).
• Your own written statement with the exact wording of Notice 797.

For more information about notification requirements and claiming the EIC, see Notice 1015, Have You Told Your Employees About the Earned Income Credit (EIC)?

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