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Advance Payment Of The Earned-Income Tax Credit - way to increase employee's take-home pay - Brief Article

Nation's Business, Oct, 1998 by Cynthia Scanlon

A little-known method for increasing low-paid workers' take-home pay is to give the employees advance payments for their federal earned-income tax credit. Wayne S. Goshkarian, president of AGB Insurance Services in Phoenix, says many employers don't realize that employees who are eligible for the earned-income credit may request that the money be added to their paychecks rather than wait for a lumpsum tax refund.

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Goshkarian, whose firm helps employers with earned-income-credit forms and information, says, "Most employers are concerned about benefits and pay, and this is one way they can provide additional income to their employees ... who qualify." In general, employees who earn less than $26,473 this year and who support a dependent child are eligible for the earned-income credit. The total amount of the advance paid to an employee in 1998 cannot exceed $1,363, or $26.21 a week. Many employers don't know that they must notify low-income employees that they might be eligible for the earned-income credit. The notification requirement may be satisfied by giving employees the official IRS W-2 form; on the back of Copy C of the form is a notice about advance payments for earned-income credit. To request advance payment, employees must fill out IRS Form W-5, the Earned Income Credit Advance Payment Certificate. In general, employers make the advance payments from withheld income tax and employee and employer Social Security and Medicare taxes. The advance payments actually reduce the amount of income and employment taxes owed by the company making the payments. For employees, the amount of payments received in advance earned-income credit is not considered wages and is not subject to withholding taxes. Employers simply add the earned-income-credit payment to the employee's net pay for the pay period. Directions for calculating how much earned-income-credit advance to add to employees' paychecks are included in IRS Publication 15, Employer's Tax Guide. For details on the earned-income credit, see IRS Publication 596, Earned Income Credit. Call the IRS at 1-800-829-1040 for copies. Or visit the agency's World Wide Web site--at www.irs.ustreas.gov--to download copies of the publications.

Business Services Industry

Advance Payment Of The Earned-Income Tax Credit - way to increase employee's take-home pay - Brief Article

Nation's Business, Oct, 1998 by Cynthia Scanlon

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