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Chapter 21. QuickBooks and Payroll Taxes > Setting Up Advance Earned Income Cre...

Setting Up Advance Earned Income Credit

If an employee meets the requirements to qualify for the Earned Income Credit, you can help him receive the tax credit through his current paycheck with the Advance Earned Income Credit. Following are some facts about how this process works:

  • The Earned Income Credit is a way to qualify individuals who expect to pay little or no federal income tax to avoid having to wait until the end of the year to file for a tax refund.

  • To establish eligibility for Advance Earned Income Credit payments, your employee must fill out and return to you a W-5 form, also known as an Earned Income Credit Advance Payment Certificate. Call 1-800-829-3676 to obtain a form.

  • QuickBooks has created a payroll item called Advance Earned Income Credit, which you can quickly apply to any qualifying employee’s paycheck; the payments can be generated automatically.

  • You, the employer, actually make this payment to the employee as part of the regular paycheck process and, in turn, deduct what you paid the employee from the amount of tax you have to deposit.

  • At the end of the year, when you create a Form 941, notice that a provision exists on line 12 for listing your Advance Earned Income Credit payments.

  • Finally, in order to feed the right Advance Earned Income Credit figures to your Form 941, you need to generate a report showing how much you paid out. Simply use the Payroll Summary by Item report, creating a filter as previously outlined. QuickBooks includes an Advance Earned Income Credit payroll item for which you can easily create a report.



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