The latest word from the feds won’t please many employees – because it means smaller paychecks for them.
IRS says it will eliminate the advance earned income tax credit (EITC) for Tax Year 2011 in order to help offset the costs of the Education Jobs and Medicaid Assistance Act of 2010.
The credit became a target in part because of a 2007 Government Accountability Office report that said only about 3% of EITC recipients who might qualify for the advance received it between 2002 and 2004.
This change, signed into law on Aug. 10, means:
- employers will no longer advance a portion of the credit in eligible employees’ paychecks
- Forms W-2, W-3, 941 and 944 will need updating
- Forms W-2c, W-3c, 941-X and 944-X will also receive facelifts – but probably not until 2014, when the statute of limitations ends on Tax Year 2010, and
- IRS will likely announce the elimination of Form W-5, Earned Income Credit Advance Payment Certificate.
In 2010, workers can receive an advanced credit of up to $1,830 by filing a Form W-5 with their employers.
Payroll then sets special withholding, allowing the employee to receive part of the credit in each paycheck rather than waiting to file a personal income tax return.
For 2011 and beyond, let employees know that those eligible for the credit will be able to claim it on their personal income tax returns.
