Advance EIC Payment
One large check.
That's the way most workers get their earned income credit (EIC). But there is another way: THE ADVANCE EIC.
What is the Advance EITC Payment?
The advance EITC allows employers to give workers a part of their EITC in every paycheck. Then, at the end of the year, the worker gets the rest of the credit after filing a tax return.
Advance Payments don't Cost Employers Money!
Employers simply subtract the advance payments they have added to their worker's paychecks from the total taxes withheld from all employees, and deposit the difference with the IRS.
What is the Advantage of the Advance EITC?
Getting a part of the EITC in each paycheck can make a big difference to some employees. According to the Center for Budget and Policy Priorities, a worker earning between $490 and $1,000 per a month can get about $50 extra in each bi-weekly paycheck. That's like getting a raise!
Who Should Choose the Advance EITC?
Not all workers will benefit from advance EITC payments. Advance payments are based on the total income workers expect their families to earn in the year. Changes in income or family size can decrease the EITC. A worker who continues to get advance payments based on an incorrect assessment of income may result in owing the IRS money, rather than getting a refund. Therefore the following workers should not use the advance EITC option:
- Workers who hold more than one job
- Workers with a working spouse, unless both spouses take advance payments
- Workers who get married during the year
- Workers whose earned income increase a lot during the year
How do Employees get the Advance EITC?
Its easy! Eligible employees fill out a W-5 form called the "Earned Income Credit Advance Payment Certificate" and give the bottom part to their employer.
Anyone who is eligible 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.
If an employee is expecting an large increase in pay or I planning to get married during the year, they should stop receiving advance payments. This is done by filing a new W-5 indicating that advance payments are no longer desired.
Married workers can choose advance payment, but if the do both spouses should file a W-5. The box on the W-5 indicating that the spouse also has a W-5 should be checked YES. This will help couple avoid an EIC overpayment.
Workers who get advance payments must file a tax return and include the total amount received in advance payments.