An employee who is eligible for the earned income credit (EIC) and who has a qualifying child is entitled to receive EIC payments with his or her pay during the year. To get these payments, the employee must give you a properly completed Form W-5. You are usually required to make advance EIC payments to employees who give you a properly completed Form W-5, but you do not have to make these payments to farmworkers paid on a daily basis.
The EIC payment is added to the employee's pay each payday. It is figured from tables in Publication 51 (Circular A). You reduce your liability for federal income tax withholding, social security tax, and Medicare tax by the total advance EIC payments made. For more information, see Publication 51 (Circular A).taxmap/pubs/p225-060.htm#en_us_publink1000218831
You must provide notification about the EIC to each employee who worked for you at any time during the year and from whom you did not withhold any federal income tax. However, you do not have to notify employees who claim exemption from federal income tax withholding on Form W-4.
You meet the notification requirement by giving each employee any of the following.
- Form W-2, which contains the EIC notification on the back of Copy B.
- A substitute Form W-2 with the exact EIC wording shown on the back of copy B of Form W-2.
- Notice 797, Possible Federal Tax Refund Due to the Earned Income Credit (EIC).
- Your own written statement with the exact wording of Notice 797.
For more information about notification requirements and claiming the EIC, see
Notice 1015, Have You Told Your Employees About the Earned Income Credit (EIC)?