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Earned Income Tax Credit (EITC)

The EITC is a special tax benefit for working people who earn low or moderate incomes. Small business owners can benefit as it can provide support to their employees and make the positions in their company more attractive and manageable for former welfare recipients. Low-income employees whose annual incomes are less than certain amounts may qualify to receive EITC. The dollar amounts to qualify for EITC change annually. The EITC may be available to single workers between the ages of 25 and 65 with no children in the home. It may also be available to all workers, regardless of age, if there are children in the home. Workers who have at least one qualifying child in the home may be eligible to receive a portion of credit in their regular paycheck. Income guidelines and further information on qualification can be obtained by visiting its website at www.irs.gov.

Advanced Earned Income Credit allows employees with at least one qualifying child to receive the credit throughout the year as part of their regular pay — AT NO ADDITIONAL COST TO THE EMPLOYER. To receive EITC advance payments, employees must simply complete Form W-5. Advance payments don’t cost employers money. Employers simply subtract the advance payments they have added to their workers’ paychecks from the total taxes withheld from all employees they would otherwise deposit with the IRS. Most employers with automated payroll systems can easily program advance payments into their systems.

Although employers may not be aware of the advance EITC payment option, any eligible employee who files a W-5 with an employer must be given advance payments. Employers are NOT required to make sure employees are eligible for the EITC – that is the employee’s responsibility. For more information, see the IRS Employer’s Tax Guide, Circular E.