Earned Income Credit Increases

Earned Income Credit Amounts Increase

Earned Income Credit Increases Amounts 2007 vs 2006

Tax Year 2007 Earned income and adjusted gross income (AGI) must each be less than:

$37,783 ($39,783 married filing jointly) with two or more qualifying children;
$33,241 ($35,241 married filing jointly) with one qualifying child;
$12,590 ($14,590 married filing jointly) with no qualifying children.

Tax Year 2007 maximum credit:

$4,716 with two or more qualifying children;
$2,853 with one qualifying child;
$428 with no qualifying children.

Investment income must be $2,900 or less for the year.

The maximum Advance Earned Income Tax Credit (AEITC) for TY 2007 the employer is allowed to provide throughout the year with the employee's pay is $1,712.

EITC

You can do this by giving your eligible employees part of the Earned Income Tax Credit (EITC) with their pay, and by subtracting the payments you make from payroll taxes. This is possible through the Advance Earned Income Credit (AEITC) program.

AEITC

The Advance Earned Income Tax Credit is a refundable credit for certain qualified workers. It is intended to help offset some of the increases in living expenses and Social Security taxes. This credit reduces the amount of tax owed, if any, and may result in a refund to the taxpayer.

Eligible employees can receive part of their Earned Income Tax Credit in their paychecks throughout the year instead of waiting until they file their tax returns. To be eligible for this AEITC payment, an employee must expect to have a qualifying child, expect to fall within certain income limits, and expect to meet other specific requirements, which are explained on Form W-5, Earned Income Credit Advance Payment Certificate, and in more detail in Publication 596, Earned Income Credit.

An eligible employee who wants the credit with his or her pay must give you a completed and signed Form W–5. The Form W–5 is valid only for the current calendar year. If your employee expects to be eligible the following year, he or she must give you a new Form W–5.

To figure the amount of credit to include with the employee's pay, use either the Tables for Percentage Method or Tables for Wage Bracket Method of AEITC Payments in Publication 15, Circular E, Employer's Tax Guide. The advance payment is added to the employee's net pay for the pay period. Since the AEITC is not wages, you don't withhold any Income Tax, Social Security, or Medicare taxes from the AEITC portion of the payment.

Generally, you make the advance payments from withheld income tax and employee and employer Social Security and Medicare taxes. However, the payment doesn't change the amount of employment taxes you would usually withhold from the employee's pay. If the employee is entitled to an advance payment that is more than his or her withholding, you can still make a payment to the employee.

Report the payments made to your employees by showing the total payments on the advance EITC line of your employment tax return, Form 941, Form 943, or Schedule H of Form 1040, whichever applies, and subtract this amount from your total employment taxes. Publication 15 and the specific instructions for the form you file will give you more information.

Earned Income Credit Increases

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