General Information

Created in 1975 as an antipoverty program, the EITC is a refundable tax credit for individuals earning moderate to low incomes. The EITC not only reduces the amount of federal income taxed owed by a qualifying taxpayer, but if no income taxes are owed, it returns money to the taxpayer in the form of a refund check, thereby supplementing their wages. The EITC not only provides benefits for lower income workers but is also an economic development tool for communities. By supplementing lower-wage work, the EITC helps make work pay more, thereby encouraging employment and promoting job retention. The EITC monies received are typically spent in the economies of the communities where these employees live and work.

The EITC is available to single or married people who worked full-time or part-time at some time during the year, depending on their income. Workers with "qualifying children" may also receive extra credits, but they do not have to have a child to receive the benefit. A "qualifying child" must live with the worker at least 6 months out of the year; be under 19 (or 24 if they are students); or be any age if disabled. This definition includes natural and adopted children, siblings, stepbrothers and step sisters, and foster children. Immigrants who are legally authorized to work can qualify, as long as they meet all other eligibility requirements.

1. The first option is that individuals can receive one check after they file a tax return. ( www. irs.gov/taxtopics/tc601.html )
2. The second option is called "Advance Earned Income Credit". This option requires the employer to add part of the employee's EITC to each paycheck and the balance is paid by the IRS after a tax return is filed. The amount of credit varies based on the taxpayer's marital status, income and number of qualifying children. For more details, go to www.irs.gov/taxtopics/tc604.html.

No, advance payments are not taxable income.

The EITC does not count as income in determining eligibility for benefits like cash-assistance (welfare), Medicaid, food stamps, SSI, or public housing. (Some benefit programs have time limits before EITC refunds effect other benefits. Please contact your local welfare office to find out more information.)

To receive the EITC, a worker must file a Form 1040, 1040A, or 1040EZ federal tax return, using a special tax table to determine the correct amount of the credit and entering it on the appropriate line. Workers with qualifying children may not file the 1040EZ.

To get the Advance EITC, eligible workers fill out Form W-5 at any time during the year and give it to their employer. To continue receiving the EITC in their paycheck at the beginning of each new year, they must file a new W-5 with their employer every year. Forms 1040, 1040A, 1040EZ, and W-5 are available from employers, by calling 1-800-TAX-FORM, or by downloading them by downloading it at www.irs.gov/formspub.

• Employees without qualifying children
  
• Employee with no Social Security and Medicare taxes withheld from the pay
  
• Employee who work day by day
  
  
• Self-employed individuals.

If an individual qualifies for the EITC, he or she might also qualify for the Advance EITC, which allows workers to receive part of their refund in their paychecks during the year. Additionally, it provides an opportunity for employers to effectively give their employees a raise without having to increase their salary. To increase enrollment in the Advance EITC, employers need to be equipped with the knowledge and tools to help their employees apply for the program.