Publication 926, Household Employer's Tax Guide; What Do You Need To Know About the Earned Income Credit?

V. Preparing Your Tax Return(s) and Information Returns

XI. Alerts and Tutorials

Update

What Do You Need To Know About the Earned Income Credit?
Certain workers can take the earned income credit (EIC) on theirfederal income tax return. This credit reduces their tax or allowsthem to receive a payment from the IRS if they do not owe tax. You mayhave to make advance payments of part of your household employee's EICalong with the employee's wages. You also may have to give youremployee a notice about the EIC.
Advance EIC payments.You must make advance EIC payments if your employee gives you aproperly completed Form W-5, Earned Income Credit AdvancePayment Certificate. Use the advance EIC payment tables inPublication 15, Circular E, Employer's Tax Guide, to findout how much to pay your employee.
Reduce the amount of social security and Medicare taxes andwithheld federal income tax you need to pay to the IRS by the amountof any advance EIC payments you make. See Publication 15 for moreinformation about making advance EIC payments.
Notice about the EIC.Copy B of the 2000 Form W-2, Wage and Tax Statement,which is the copy filed with the employee's federal tax return,has a statement about the EIC on the back. If you give your employeethat copy by January 31, 2001 (as discussed under Form W-2on page 8), you do not have to give the employee any othernotice about the EIC.
Otherwise, you must give your household employee a notice about theEIC only if you agree to withhold federal income tax from theemployee's wages (as discussed under Do You Need To WithholdFederal Income Tax? on page 5), but the income tax withholdingtables show that no tax should be withheld. Even if not required, youare encouraged to give the employee a notice about the EIC if his orher 2000 wages are less than $31,152.
If you do not give your employee Copy B of the Form W-2, yournotice about the EIC can instead be any of the following items.
A substitute Form W-2 with the same EIC information onthe back of the employee's copy that is on Copy B of the FormW-2.
Notice 797, Possible Federal Tax Refund Due to theEarned Income Credit (EIC).
Your own written statement with the same wording as inNotice 797.
If a substitute Form W-2 is given on time but does not havethe required EIC information, you must notify the employee within oneweek of the date the substitute Form W-2 is given. If FormW-2 is required but is not given on time, you must give theemployee Notice 797 or your written statement about the 2000 EIC byJanuary 31, 2001. If Form W-2 is not required, you must notifythe employee by February 7, 2001.