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AEITC - Advanced Earned Income Tax Credit The Advanced Earned Income Tax Credit (“AEITC”) is a federal program designed to assist low-income Americans by increasing their spendable income with tax credits that can be advanced on a monthly basis rather than waiting for it at the end of the year. The Advance Earned Income Credit (“Advance AEITC”) is specifically designed for low-income parents with minor children. The program works by increasing the take-home pay of Americans at no cost to the employer.
Advance Earned Income Tax Credit applies works by allowing people to apply in advance for tax credits that they would be allowed at the end of the year so that they can increase their take home pay from their employer now, when they need the money most. Many people don’t even know about the Earned Income tax credit and forget to apply for it at the end of the year. These advanced tax credits can be used to pay for health insurance premiums. The employer withholds money that would normally go to the IRS and instead puts it back in the employee’s paycheck.
How do I find out if my Employer offers this program?
All employers are eligible to use this program. It is simply just nor promoted and most employers have not heard about it. While the program is available for employees who will make less than $32,001 per year, specifically this program is best utilized where full time or part time employees earn $2,300 or less per month. ($27,600 or less per year).
The less the you make the greater the tax credit you will receive!
Who Qualifies for the Tax Credit?
The Advance Earned Income Tax Credit is ONLY available to married or single employees that have at least one qualifying child. IF the employee has no dependents they cannot qualify for this tax credit.
How Much is the Credit?
The credits vary by income and marital status. For a single employee earning $2,000 a month ($24,000 per year) the Advance Earned Income Tax Credit will free up $63.56 per month to pay for health insurance – with no change to the employee’s take-home pay! For a married employee earning $1,400 per month ($16,800 per year), the Advance Earned Income Tax Credit will free up to $137.00 per month that can be used to purchase health insurance.
Can This Money Be Used to Pay for Health Insurance?
Yes, the qualifying employee may use his or her Advance Earned Income tax Credit payments to pay for their health insurance. Health insurance premiums are paid through payroll deduction. The Advanced Earned Income Tax Credit can be implemented easily with a specifically designed benefit structure and rate so that the Advance Earned Income Tax Credit will be sufficient to pay the entire monthly premium.
Does offering the Advanced Income Tax Credit Cost the Employer anything?
No. The use of Advance Earned Income Tax Credit is cost-neutral to the employer. It does not change the gross payroll nor does it affect the employer’s tax return.
Who is Qualified for Earned Income Credit?
To be eligible, the employees must have a qualifying child and earn less than the following amounts in the year:
| Single Employees | Married Employees | 2 or more
children | 1 child | 2 or more
children | 1 child | $36,348 | $32,001 | $38,348 | $34,001 |
| Monthly Earnings | Single | Married | | $1,200 | $137.00 | $137.00 | | $1,400 | $131.08 | $137.00 | | $1,600 | $101.91 | $117.82 | | $1,800 | $82.73 | $98.65 | | $2,000 | $63.56 | $79.47 | | $2,200 | $44.38 | $60.30 | | $2,400 | $25.20 | $41.12 |
Note: The Employer Has No Role in Determining Advanced Earned Income Tax Credit Eligibility:
THE IRS STATES:
“Employers…. are not required to determine if a completed and signed W-5 is correct,”
Employees alone determine if they qualify for the Advance EITC, the employer has no role in making this determination.
THE IRS STATES:
“Employers are required to make advance AEITC payments to employees who give you a completed and signed Form W-5.”
Could a person’s eligibility change for their monthly deductions from the Advanced Earned Income Tax Credit?
Yes, if during the year, an person’s income rises above the dollar amount for the Advanced Earned Income Tax Credit, the employee needs to fill out a new form W-5 and give it to their employee to stop or to adjust the Advanced Earned Income Tax Credit payments.
What is a Qualifying Dependent under the Advanced Earned Income Tax Credit? General Rule: - the taxpayer’s child or stepchild (whether by blood or adoption), foster child, sibling or stepsibling, or a descendant of one of these.
- has the same principal residence as the taxpayer for more than half the tax year. Exceptions apply, in certain cases, for children of divorced or separated parents, kidnapped children, temporary absences, and for children who were born or died during the year.
- must be under the age of 19 at the end of the tax year, or under the age of 24 if a full-time student for at least five months of the year, or be permanently and totally disabled at any time during the year.
- did not provide more than one-half of his/her own support for the year.
What is Taxable Earned Income? - Wages
- Salaries
- Tips
- Bonuses & Commissions
- LTD Benefits prior to retirement
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