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Pay advance Earned Income Credit (EIC) to employees

What is advance EIC (AEIC)?

Who is eligible to receive AEIC payments?

When you pay an employee who is set up to receive advance EIC payments, QuickBooks adds the payment to the paycheck using the payroll item Advance Earned Income Credit.

An advance EIC payment is not considered wages and is therefore not subject to withholding of income, Social Security, or Medicare taxes. The payment reduces your company's federal tax liabilities. At the end of the year, QuickBooks shows the total advance EIC payments on the employee's Form W-2.

If the wages on the paycheck are not within the limit set by the tax table, there is no advance EIC payment.

Note: Effective January 1, 2011, the option for advance EIC payments has been eliminated. Individuals eligible for the EIC may still claim it on their personal income tax returns, but employers may no longer advance a portion of the credit with each paycheck.

For detailed information and current IRS requirements, Go onlinecontact the IRS.

To set up an eligible employee to receive advance EIC payments

  1. Click Employee Center.

  2. On the Employees tab, double-click the employee to whom you are paying the advance EIC.

  3. Click the Change tabs drop-down arrow and then choose Payroll and Compensation Info.

  4. Click the Taxes button.

  5. On the Federal tab, select the Advance Earned Income Credit checkbox.

  6. Click OK.

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