As part of government budget cuts for next year, qualified employees will no longer have the option to receive their Earned Income Tax Credit (EITC) as part of an advance in their paycheck throughout the year. These low income workers can still take the tax credit as a lump sum at the time that they file their federal income taxes each year, but won’t have the option to spread out the tax credit as a payment in their checks.
This elimination is part of H.R. 1586 (the Education, Jobs and Medicaid Assistance Act), which was signed into law by President Obama in August. The Advance Earned Income Tax Credit (AEITC) program will be terminated effective for all tax years beginning after December 31, 2010. Government research suggests the program is underutilized, with only 3% of eligible employees taking advantage of the advance program, and 20% of claimants have invalid social security numbers.
What Do Employers Need To Do?
Be aware that this credit is ending starting with paychecks dated January 1, 2011 and later. Confirm that your payroll software will change so that the Advance Earned Income Credit does not calculate on checks next year. If you have employees who take the AEIC, communicate to them that this option is going away, but they will still be able to take a lump sum credit when they file their federal income taxes. IRS payroll forms are expected to be changing as well, although they have not be issued yet. This includes the elimination of Form W-5 and changes to Forms W-2, W-3, 941 and 944.