Earned Income Credit

The EIC is a tax credit available to low-income employees. The credit reduces taxes owed and is intended to offset living expenses and Social Security taxes paid. An eligible employee may either claim the whole credit on his or her federal income tax return, in which case it will be paid out in a lump sum by the federal government, or in certain cases, he or she may choose to receive the credit incrementally with each paycheck. In the 2010 tax year, an employee can receive as much as $1,830 in advance earned income credit (AEIC) payments. An employee who chooses the advance payments option must file Form W-5 (Earned Income Credit Advance Payment Certificate) with his or her employer. Provided the certificate is valid, the employer is required to make AEIC payments to the employee.