Form W-5 Earned Income Credit

By | March 7, 2015

Would you like to help your employees to increase net income at no cost to you? You can do this by giving employees who meet the requirements of the earned income credit with the pay and subtracting those payments you make of payroll taxes.


Form W-5 Earned Income Tax Advance

This is possible through the Advance Payment Program Earned Income Credit (or EIC Advance) which is filed for through IRS Form W-5. This form changes each year. The 2015 Form W-5 can be found on the IRS website and allows you to claim an earned income credit advance. The advance EITC allows certain taxpayers to receive their EITC in installments throughout the year, instead of a lump sum during the following filing season. Those who expect to qualify for advance EITC can register in January. The credit will appear in each paycheck, equally dispersed throughout the year.

Form W-5 (for Advance Earned Income Credit) is discontinued as of December 31, 2010.  Individuals can still claim the Earned Income Credit on their personal income tax returns but the Advance Earned Income Credit is no longer an option as a payroll tax credit after December 31, 2010.


What is the Earned Income Credit Advance?

The earned income credit is a refundable credit for certain skilled workers. The goal is to help offset some of the increases in the cost of living and social security taxes. The credit reduces the amount of tax due, if any, and may result in a refund to the taxpayer. Employees who qualify may receive part of their earned income credit in their paychecks throughout the year, rather than waiting to file the tax return.

To be eligible for this payment of EIC advance, the employee must have to expect to have a qualifying child, expect the income is between certain limits and have to wait to other specified requirements, which are explained W-5 form, Advance Payment Certificate of Earned Income Credit, and in more detail in Publication 596 (SP), Earned Income Credit.


Getting Earned Income Tax Credit Early

Here’s how it works: An employee who is eligible and wishes to receive credit with your pay must give you a Form W-5 completed and signed. By law, you must provide advance payments to most employees who qualify and submit this form. If your employee is expected to qualify for next year, he or she will have to give a new form. To calculate the amount of credit to be included in employee pay, use Tables for Percentage Method or Tables for Method of categories Wage Advance Payment of EIC, which are contained in Publication 15 ( Circular E ), Employer’s Tax Guide (Circular E, Employer Tax Guide)


Advancing Earned Income Credit EIC on Form W-5

The prepayment is added to the employee’s net pay for the pay period. As the EIC does not constitute salary, you do not withhold payment tax on income taxes or Social Security or Medicare .Usually you make prepayment using the tax withheld income taxes, social security and Medicare for the employee and the employer. However, the payment does not change the amount of payroll taxes you normally would retain the employee’s pay. If the employee is entitled to an advance payment that is greater than its retention, you can still make a payment to the employee.

Report payments made to employees showing the total payments on line ahead of the EIC tax on payroll: Form 941, Form 943, Form 944 or Schedule H of Form 1040, where appropriate, and subtract this amount from the total payroll taxes. Publication 15 and specific instructions on the form that this will give you more information.


More Earned Income Tax Credit Information and Form W-5

The IRS provides information seminars to explain the EIC Come and EIC to stakeholders. If you are interested in having an employee of the IRS talk to your staff payroll and employees about the EICCome and EIC , call 1-800-829-1040 and ask for the Taxpayer Education Coordinator for your area


More Information about 2015 and 2016 Earned Income Tax credit (2015 EIC)