NH Earned Income Tax Credit

Most workers get the EITC in one large check from the IRS after they file a tax return. But there is another choice: employers can add part of a worker’s EITC to every paycheck, and the worker gets the rest of the credit after filing a tax return. This is called “Advance EITC payment.” Advance payments are not taxable income.

In 2009, Advance EITC payments are available to any worker with at least one qualifying child who expects 2009 income of less than $33,995 (or $35,995 for married workers). Advance EITC payments are not available to workers who are not raising a qualifying child in their home.

What are the advantages of Advance EITC payment?

For many workers, getting part of their EITC in each paycheck can make a difference in paying the rent, buying groceries, and meeting other day-to-day needs. A worker earning between $490 and $1,300 a month, for example, can get about $50 to $60 extra in each bi-weekly paycheck. Advance EITC payments are not counted as additional income in determining eligibility for public benefits such as cash assistance, housing assistance, food stamps and Medicaid. Employers also benefit from promoting Advance EITC payments — they can help employees increase their take-home pay at no cost to the business. This can decrease turnover in the workplace.

Back to top.

Protection against overpayment

Some workers decide against advance payments because they want a larger refund at tax time. But some workers also fear they will receive too much in advance and owe money back to the IRS after the end of the year. However, the advance payment procedure has built-in protections against overpayment. Workers who choose advance payment can get up to about half of the EITC amount to which they’re entitled for the year. They get the rest as a refund when they file their tax return. This means workers can get advance payments and a year-end refund! And, because workers receive only part of their EITC during the year, they’re protected against getting too much in advance and owing some back at the end of the year.

Back to top.

Some workers should not choose Advance EITC payment

Eligibility for Advance EITC payments is based on the total income a worker expects to earn in a year, including the income of a spouse. Major changes in family income, marriage or the eligibility of a qualifying child during the year can decrease the EITC for which workers are eligible. If a worker continues to receive advance payments based on an incorrect estimate of eligibility, these payments may exceed the amount of the EITC. In this case, the worker would have to send the IRS a check at tax time to make up the difference. The following workers should not use the advance payment option:

• Workers who hold two or more jobs simultaneously
• Workers with a working spouse, unless both spouses take advance payments during the year
• Workers who get married during the year, if both spouses work

Back to top.

How do you get the Advance EITC payment?

To get the Advance EITC eligible workers fill out a W-5 form called the “Earned Income Credit Advance Payment Certificate” and give part to their employer. The W-5 is available from employers or by calling 1-800-TAX-FORM, or download it from the IRS website .

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

Married workers can choose advance payment, but if they do, both spouses should give a W-5 to their employers. The box on the W-5 indicating the worker’s spouse also has a W-5 in effect should be checked “yes.” This signals the employer of each spouse to figure the correct amount of the advance payment and avoid an EITC overpayment. If only one spouse chooses advance payment, the amount he or she receives may be too high.

A worker already receiving Advance EITC payments who is planning to get married to someone who also works, or expects a large pay increase during the year, should ask his or her employer to stop the advance payments. To do this, workers file a new W-5 form with their employer and indicate they don’t want to receive advance payments any more.

Remember! Workers who get Advance EITC payments during the year must file a tax return after the end of the year and fill in the correct line to show the total amount received in advance payments. They must also complete Schedule EITC and attach it to their tax return.

Back to top.

Some workers aren’t eligible to get Advance EITC payments

Some workers who are eligible for the EITC are not allowed to get Advance EITC payments, including:
• Workers without qualifying children
• Workers who get paid day by day
• People with no Social Security and Medicare taxes withheld from their pay
• Self-employed workers, who cannot advance the EITC to themselves

Back to top.

What is the employer’s role?

Advance payments don’t cost employers money. Employers simply subtract the advance payments they have added to their workers’ paychecks from the total taxes withheld from all employees they would otherwise deposit with the IRS. Most automated payroll systems handle Advance EITC. Some employers may not be aware of the Advance EITC payment option. But under federal law, any eligible employee who files a W-5 must be given advance payments. Employers are not required to make sure employees are eligible for the EITC — that is the employee’s responsibility.

To learn more about Advance EITC payment visit the IRS Advance Earned Income Credit Questions and Answers.

Back to top.