What is the EITC?

The EITC is a refundable federal tax credit for certain qualified workers. The EITC is intended to offset increases in living expenses and Social Security and Medicare payroll taxes. It reduces the amount of tax owed by qualified workers, if any, and may result in a refund of up to $4,824. Qualified employees claim their EITC when filing their federal taxes. Employees may choose to get advances by signing up for the federal Advance EITC program. The Advance EITC lets employees receive a portion of their EITC as a supplement to their paychecks throughout the year, and the remainder of their refund when they file their federal taxes.

What is the San Francisco Working Families Credit?

To complement and build upon the federal program, San Francisco has created its own version of the EITC, the Working Families Credit, for workers that receive the EITC, live in San Francisco, and have at least one qualifying child. In addition to providing an additional $100, the Working Families Credit connects your eligible workers to other valuable resources including discounts on Muni passes and utilities. When you make your employees aware of the EITC and Working Families Credit, you are:

• helping eligible workers to keep more of what they earn;
• drawing down federal dollars for the local community; and
• building your reputation as an employer of choice.

What Does the New Law Mean for Me?

• You must inform all employees that they may be eligible for the EITC
  Effective Jan. 1, 2008, California law requires that you notify all employees covered under California Unemployment Insurance Code of their possible eligibility for the EITC. Employers are required to hand directly to the employee or mail to the employee’s last known address written notification. Posting or displaying information in the workplace or sharing information with employees via e-mail, does not meet the requirements of the law; however, it is encouraged as an additional means to increase employee awareness of the EITC. The law requires notification of your employees within one week before or after, or at the same time that you provide them with their annual wage summary, including, but not limited to, W-2 forms.
  
  Here is a list of tools, to help you notify your employees:
  • Download a notice to distribute to your employees that meets the new CA state legal requirements. Remember, you must hand this notice directly to the employee or mail it to the employee’s last known address. You may wish to enclose a copy with the W-2 form.
  • Tell your employees about the San Francisco Working Families Credit. For more information, contact Allison DeLise with SF Works at (415) 217-5181.
  • You may also want to notify employees earning less than $45,000 that they are eligible to have their taxes completed for free. Tell your employees to call 2-1-1 for more information.

• You are required to provide the Advance EITC to any employee who requests it
  The legal notification provided above includes information for employees about the Advance EITC. You are required to inform employees about where they can get the required IRS W-5 form and to process the Advance EITC upon request of the employee. For employees, there are both pros and cons to receiving the Advance EITC, so you may receive requests for it from some eligible employees and not from others.

How Do I Make the Advance EITC Available to My Employees?

• You will be making employees aware of the Advance EITC option when you hand or send them the EITC Notification form above. When an employee requests the Advance EITC, you must provide them with an IRS W-5 form (download an IRS W-5 form). You may wish to print multiple copies to keep on hand should employees request them and to include them among materials you provide to new employees.
  • Eligibility guidelines for the Advance EITC differ slightly from those for the EITC. They are detailed on the IRS W-5 form which interested employees must review and complete.
  • Employees must reapply for the Advance EITC by completing a new IRS W-5 form every calendar year that they wish to receive it.
• Ask interested employees to return completed W-5 forms to the appropriate human resources or management personnel.
• Include Advance EITC payments in requesting employees’ paychecks. The amount to be included varies, based on a percentage of the employee’s salary. The advance payment is added to the employee’s net pay for the pay period. Since the Advance EITC is not wages, you don’t withhold any Income Tax, Social Security, or Medicare taxes from the Advance EITC portion of the payment.
• To figure the amount of credit to include with the employee’s pay, use the Tables for Percentage Method or Tables for Wage Bracket Method of Advance EITC Payments in Publication 15, Circular E, Employer’s Tax Guide.
  • In 2009, the maximum annual Advance EITC you can provide to an employee with at least one qualifying child is $1,750.
• Report the payments made to your employees by showing the total payments on the Advance EITC line of your employment tax return (i.e., Form 941, Form 943, or Schedule H of Form 1040, whichever applies), and subtract this amount from your total employment taxes. If you use an employment tax software program, it likely incorporates Advance EITC payments into its calculations.
  • More information about specific filing instructions can be found in IRS Publication 15, Circular E, Employer’s Tax Guide.