If you’re a business owner, would you like to help your employees increase their take–home pay at no cost to you? If you’re an employee, wouldn’t that be a nice deal for you as well? The Advance EIC Programs allows part of the earned income credit to be received with regular pay rather than when taxes are filed in the following year.
The EIC (or EITC) is a refundable credit for qualified employees. The credit reduces the amount of tax owed, if any, and may result in a refund to a taxpayer even if no tax is due. Workers may take the EIC whether they file their taxes on Form 1040 or 1040 EZ.
Eligible employees can receive part of their earned income credit for current year in their paychecks throughout the year, instead of waiting until they file their tax returns. To be eligible for Advance EIC payment, an employee must have a qualifying child, fall within certain income limits, and meet certain other age, residency and work requirements.
The employee must give his/her employer a completed and signed Form W-5. The calculation of the amount of the advance credit is found using Publication 15, Circular E, the Employer’s Tax Guide.
The advance payment is added to the employee's net pay for the pay period. Since the EIC isn't wages, you don't withhold any income, social security, or Medicare taxes from the payment.
Generally, you make the advance payments from withheld income tax and employee and employer social security and Medicare taxes. However, the payment doesn't change the amount of employment taxes you would usually withhold from the employee's pay. The employer does get to subtract this amount from total employment taxes due.
Please visit TurboTax online and try one of their free online tax calculators to help you determine the amount you may receive for child tax credit.
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