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Getting the word out on the Earned Income Tax Credit

Assembly Bill 650 (Lieu and Jones, Stats. 2007, Ch. 606) is a new law that requires employers to notify all of their employees about the federal Earned Income Tax Credit (EITC). The Employment Development Department (EDD) is the lead agency in getting the word out to California employers. With EDD’s permission, we are reprinting the information and FAQs on EITC notification. For more information on employment taxes and employer/employee issues, visit the EDD Website and check their EITC Notification FAQs.

Earned Income Tax Credit notification

Effective January 1, 2008, all employers are required to notify all of their employees of the federal Earned Income Tax Credit (EITC).

Assembly Bill 650 (Lieu and Jones, Stats. 2007, Ch. 606) requires any employer who is subject to, and is required to provide unemployment insurance, to employees to notify all employees that they may be eligible for the EITC. Employers shall give notification to employees within one week before or after the Wage and Tax Statement (Form W–2) or Miscellaneous Income (Form 1099) is given. Employers may provide the EITC notification with or at the same time as the Form W-2 or Form 1099 is given to employees. This new law also requires the employer to process the IRS Form W–5 for advance payments of the EITC, if requested by the employee.

You must provide notification to your employees by either handing it directly to your employee or mailing it to your employee's last known address. Posting of this information on an employee bulletin board will not satisfy the notification requirement.

The notification shall include instructions on how to obtain any notices available from the Internal Revenue Service for this purpose, including, but not limited to, the IRS Notice 797 and Form W–5, or any successor notice or form, or any notice created by you, as long as it contains substantially the same language as the notice below or in this sample notice.

NOTICE TO EMPLOYEES

Based on your annual earnings, you may be eligible to receive the Earned Income Tax Credit from the federal government. The Earned Income Tax Credit is a refundable federal income tax credit for low-income working individuals and families. The Earned Income Tax Credit has no effect on certain welfare benefits. In most cases, Earned Income Tax Credit payments will not be used to determine eligibility for Medicaid, supplemental security income, food stamps, low-income housing or most temporary assistance for needy families payments. Even if you do not owe federal taxes, you must file a tax return to receive the Earned Income Tax Credit. Be sure to fill out the Earned Income Tax Credit form in the federal income tax return booklet. For information regarding your eligibility to receive the Earned Income Tax Credit, including information on how to obtain the IRS Notice 797 or Form W-5, or any other necessary forms and instructions, contact the Internal Revenue Service at (800) 829-3676 or through its Website at www.irs.gov.