Certain workers can take the earned income credit (EIC) on their federal income tax return. This credit reduces their tax or allows them to receive a payment from the IRS. You may have to make advance payment of part of your household employee's EIC along with the employee's wages. You also may have to give your employee a notice about the EIC. taxmap/pubs/p926-004.htm#en_us_publink100086756
You must make advance EIC payments if your employee gives you a properly completed Form W-5, Earned Income Credit Advance Payment Certificate. Use the advance EIC payment tables in Publication 15 (Circular E), to find out how much to pay your employee.
Reduce the social security and Medicare taxes and withheld federal income tax you need to pay to the IRS by any advance EIC payments you make. See Publication 15 (Circular E), for more information about making advance EIC payments. taxmap/pubs/p926-004.htm#en_us_publink100086757
Copy B of the 2010 Form W-2, Wage and Tax Statement, has a statement about the EIC on the back. If you give your employee that copy by January 31, 2011 (as discussed under Form W-2, on page 9), you do not have to give the employee any other notice about the EIC.
If you do not give your employee Copy B of the Form W-2, your notice about the EIC can be any of the following items.
- A substitute Form W-2 with the same EIC information on the back of the employee's copy that is on Copy B of the Form W-2.
- Notice 797, Possible Federal Tax Refund Due to the Earned Income Credit (EIC).
- Your own written statement with the same wording as in Notice 797.
If a substitute Form W-2 is given on time but does not have the required EIC information, you must notify the employee within one week of the date the substitute Form W-2 is given. If Form W-2 is required but is not given on time, you must give the employee Notice 797 or your written statement about the 2010 EIC by January 31, 2011. If Form W-2 is not required, you must notify the employee by
February 7, 2011.
You must give your household employee a notice about the EIC if you agree to withhold federal income tax from the employee's wages (as discussed earlier under Do You Need To Withhold Federal Income Tax?) and the income tax withholding tables show that no tax should be withheld. Even if not required, you are encouraged to give the employee a notice about the EIC if his or her 2010 wages are less than $35,535 ($40,545 if married filing joint).