Hiring Employees

Checklist for Hiring Employees

How to compute the Advance Earned Income Credit allowance for your employee

An employee who is eligible for the earned income credit (EIC) and 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, Earned Income Credit Advance Payment Certificate. You are required to make advance EIC payments to employees who give you a completed and signed Form W-5.

Length of effective period. Form W-5 is effective for the first payroll period ending on or after the date the employee gives you the form (or the first wage payment made without regard to a payroll period). It remains in effect until the end of the calendar year unless the employee revokes it or files another one. Eligible employees must file a new Form W-5 each year.

How to figure the advance EIC payment. To figure the amount of the advance EIC payment to include with the employee's pay, you must consider:

• Wages, including reported tips, for the pay period.
• Whether the employee is married or single.
• Whether a married employee's spouse has a Form W-5 in effect with an employer.

Figure the amount of advance EIC to include in the employee's pay by using the appropriate tables in Publication 15. There are separate tables for employees whose spouses have a Form W-5 in effect. Also see Publication 15 for instructions on using the advance EIC payment tables. 

For information about paying the advance EIC to employees, employer’s returns, or required notice to employees, see the appropriate chapters of Publication 15.

Important References

Publication 15      (Circular E), Employer's Tax Guide
Publication 596    Earned Income Credit (EIC)
Form W-5              Earned Income Credit Advance Payment Certificate
Form 941               Employer's Quarterly Federal Tax Return