The Secret To Earned Income Credit

Have you ever heard about the earned income credit (EIC)? Based on income, filing status and number of qualifying children, EIC is something your employees may qualify for. In a nutshell, EIC is one of the many government programs that aid low-income workers. See below for more information on if your employees qualify and how to get started.


The Facts:

  • What is it? A tax credit
  • ​When did it start? 1975
  • Why? To help low-income employees with or without children or spouses
  • Is it successful? Absolutely. The credit aids 21 million workers roughly totaling $40 billion each year. 
  • Plus... the credit can be paid as a tax refund when employees' taxes are lower than the full amount of the credit. 


The Numbers:

The following information comes from the IRS’ 2016 EITC Income Limits, Maximum Credit Amounts and Tax Law Updates

  Earned Income and Adjusted Gross Income (AGI) Limits

  Income and AGI must be less than:

  If filing… 

Qualifying Children Claimed





  Single, Head of Household       or Widowed





  Married Filing Jointly






  Maximum Credit Amounts for 2016:

  Max Credit Amount





  Number of Qualifying     Children





*Investment Income limit must be $3,400 or less for the year. 


Advanced Earned Income Credit Program

Employees, with a qualifying child, may want to receive a portion of their credit throughout the year rather than waiting until then end of the tax year, and thanks to the advance earned income credit program, employees can do just that. Basically, then, employers are responsible for adding the due credit to the employee’s paycheck if that’s the route employees want to take. There is a penalty for employers who don’t add the credit to the paycheck. 

How does this work?

  • Employees must complete and give their employer a Form W-5 (Earned Income Credit Advance Payment Certificate)
  • Advance payment is calculated by percentage or wage bracket (see IRS publication 15, Employer’s Tax Guide)
  • Advance payments can be more than half of the totaled earned income credit 
  • Income taxes, Social security and Medicare aren’t withheld from advance EIC payments 
  • The payments are reported on tax returns and is subtracted from total taxes


BenefitMall is an expert in helping small businesses with their payroll and taxes including setting up an account with our online payroll software, payroll reporting and payroll tax compliance. If you think you, your clients or employees qualify for EIC, it’s definitely worth looking into. BenefitMall encourages you to take advantage of this credit and seek advice from your HR department, tax advisor or reach out to a BenefitMall Representative today to understand all the details. With BenefitMall, we make it easy for small business owners to include earned income credits for employees in regards to processing payroll and keeping compliant at the same time.  

Learn more about our online payroll solution today.