You can help promote the Earned Income Tax Credit (EITC) by using your communication network so that more eligible people receive it, bringing more dollars into your community. A tax credit is a dollar-for-dollar reduction of taxes owed. Some credits are refundable - taxes could be reduced to the point that an individual would receive a refund rather than owing any taxes.
Volunteers are needed to help provide free tax preparation services and to help raise awareness of free tax preparation services and the EITC in local communities. Your organization can sponsor volunteers at our free tax sites in your community to prepare tax returns for those who cannot prepare their own and cannot afford professional help.
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You can do this by giving your eligible employees part of the Earned Income Tax Credit (EITC) with their pay, and by subtracting the payments you make from payroll taxes. This is possible through the Advance Earned Income Credit (AEITC) program.
The Advance Earned Income Tax Credit is a refundable credit for certain qualified workers. It is intended to help offset some of the increases in living expenses and Social Security taxes. This credit reduces the amount of tax owed, if any, and may result in a refund to the taxpayer.
Eligible employees can receive part of their Earned Income Tax Credit in their paychecks throughout the year instead of waiting until they file their tax returns. To be eligible for this AEITC payment, an employee must expect to have a qualifying child, expect to fall within certain income limits, and expect to meet other specific requirements, which are explained on Form W-5, Earned Income Credit Advance Payment Certificate, and in more detail in Publication 596, Earned Income Credit.
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An eligible employee who wants the credit with his or her pay must give you (the employer) a completed and signed Form W-5.
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The Form W-5 is valid only for the current calendar year.
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If your employee expects to be eligible the following year, he or she must give you a new Form W-5.
To figure the amount of credit to include with the employee's pay, use either the Tables for Percentage Method or Tables for Wage Bracket Method of AEITC Payments in Publication 15, Circular E, Employer's Tax Guide. The advance payment is added to the employee's net pay for the pay period. Since the AEITC is not wages, you don't withhold any Income Tax, Social Security, or Medicare taxes from the AEITC portion of 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. If the employee is entitled to an advance payment that is more than his or her withholding, you can still make a payment to the employee.
Report the payments made to your employees by showing the total payments on the advance EITC line of your employment tax return, Form 941, Form 943, or Schedule H of Form 1040, whichever applies, and subtract this amount from your total employment taxes. Publication 15 and the specific instructions for the form you file will give you more information.
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