Advanced Earned Income Credit

If an employee claims qualification for advance Earned Income Credit payments, a number of special procedures are required to track the credit when preparing each payroll cycle, FIT/FICA payroll deposit, quarterly 941 report, and W-2 forms.

Follow the steps below to properly handle an advance Earned Income Credit payment.

Tracking Earned Income Credit Payments

  1. On the Site Map, click Payroll > Maintenance > Deduction / Add-on Code. At the deduction code field, enter EI (Earned Income). This should be an Add-on type code, paid to the employee. It may be a fixed amount or another calculation method, as needed.

  2. Enter the G/L account code to be debited during the payroll cycle (usually it is the FIT/FICA payable liability account, or a contra-liability account).

  3. On the Site Map, click Payroll > Maintenance > Employee Deduction / Add-on. Enter the employee code and then proceed with the recurring entry. At the Deduction code field, enter EI, and record the % / amount of the credit (or rate) to be applied per payroll cycle.

  4. On the Site Map, click Payroll > Data Entry > Payment Processing. Proceed with the payroll cycle as usual. Review the employee's records during the Check Calculation to make sure the recurring earned income credit amount appears. This amount will result in an increase to the net pay of each check issued to the employee. When the payroll cycle is updated, cash is credited and the liability account designated for the earned income will be debited.

  5. At the end of the quarter, the total amount of advance earned income credit payments made during the quarter must be recorded on the Federal quarterly 941 report. To determine this amount, on the Site Map screen, click Payroll > Reports > Deduction History. In the Deduction code fields, enter EI and print the Deduction History Report.

  6. At year end, the W-2 of any individual receiving advance earned income credit payments must reflect the amount paid.

  7. In the Payroll > Period End > W-2 Form Maintenance screen, enter the total advanced EIC payment amount in Box 9.