If you employ an individual whose income is below threshold amounts, the employee may be eligible to claim an earned income credit. This is a special type of credit because it can exceed tax liability. It is called a refundable credit, since it can be paid to a worker even though it more than offsets tax liability. From an employer’s perspective, it is important to realize that a portion of the credit can be given to the employee along with the salary check. In essence, the credit is advanced to the employee. This credit belongs to the employee, not the employer. If you think you may have an employee who would qualify for the credit, you are required to inform him or her of eligibility and offer the option of receiving an advanced credit. You must notify employees who have no income tax withheld (other than those who claimexemption fromwithholding). You are encouraged to notify employees who have a qualifying dependent and compensation of less than a set amount (in 2007, less than $39,782 and two or more qualifying children; less than $35,241 and one qualifying child if married filing jointly; $37,782 or $33,241 if single). (A limited credit may be claimed by low earners without any qualifying dependents, but they cannot receive the credit on an advanced basis.) The IRS has provided notification guidance in Notice 797, Possible Federal Tax Refund Due to the Earned Income Credit,and Notice 1015, Employers—Have You Told Your Employees About the Earned Income Credit?

Rate this topic:

(No Ratings Yet)

 Loading ...