U.S. DEPARTMENT OF LABOR
Employment and Training Administration
Washington, D. C. 20210
Earned Income Credit
Feb. 28, 1994
|DIRECTIVE||:||TRAINING AND EMPLOYMENT INFORMATION NOTICE NO. 35-93|
|TO||:||ALL STATE JTPA LIAISONS
ALL STATE WAGNER-PEYSER ADMINISTERING AGENCIES
ALL STATE WORKER ADJUSTMENT LIAISONS
|FROM||:||BARBARA ANN FARMER
for Regional Management
|SUBJECT||:||Earned Income Credit|
Purpose. To provide information on the Earned Income Credit.
Background. The Internal Revenue Service (IRS) is asking for assistance from Federal, State, and local agencies in informing potentially eligible individuals about the Earned Income Credit (EIC) and the Advanced Earned Income Credit (AEIC).
Tax year 1993
The EIC is a tax benefit for working families with at least one child and income of less than $23,050 in tax year 1993. Eligible families can receive an EIC of as much as $2,364. The EIC is claimed by filing a Federal income tax return and a form called Schedule EIC. Even families whose incomes are so low that they do not owe Federal income tax can get the credit. For most persons, such returns must be filed by April 15, 1994.
There are three parts to the 1993 EIC. The first part is the basic EIC for families with one child and is worth a maximum of $1,434 in 1993. For families with more than one child, the basic EIC is worth up to $1,511. The amount of the credit varies according to family income level. The second part is that families with a child born in 1993 can receive an extra EIC benefit of up to $388. The third part is that families that pay at least part of the premiums for a health insurance policy that includes coverage for a child may receive an extra benefit of up to $465. Families that qualify for both the basic EIC and extra credits can receive up to $2,364 for 1993.
Significant changes were enacted in August 1993 that will expand and simplify the EIC. These changes, which are effective for tax year 1994, provide most eligible families with a significantly larger benefit while very low-income workers without children will become eligible for the first time. The new law simplifies the EIC by eliminating the extra credits for families paying health insurance premiums for a child and for families with a child under age one. This revision is to be phased in over 3 years. For 1994, families with one child may receive a maximum benefit of $2,038 and with 2 or more children a maximum benefit of $2,528. For 1996 and years after, families with one child may receive a maximum benefit of $2,040 and with 2 or more children a maximum benefit of $3,370.
Advance Payment Option
There is a provision in the EIC under which workers can obtain "advance payments." A recent survey indicates that only about 10 percent of eligible workers were aware of this option. It is obtained by filing a W-5 form, called the "Earned Income Credit Advance Payment Certificate," with an employer. The employee would then receive EIC payments in each paycheck. Beginning in 1994, eligible families can receive up to 60 percent of the basic EIC to which they are entitled by paycheck. This could mean as much as $100 more a month for those entitled to the maximum credit. At the end of the year, they would file a Federal income tax return and Schedule EIC to claim the remainder.
Program Implications. The Earned Income Credit has significant implications for eligible individuals in employment and training programs. It can increase the resources of EIC eligible participants. As discussed above, persons who receive EIC advance payments can receive up to 60 percent of the EIC as part of their regular wage payments. Since the EIC amounts will increase in future years, through 1996, it will be of increasing benefit to persons who continue to be eligible.
Please note that funds received under the EIC are not "income" for Job Training Partnership Act (JTPA) purposes and are not considered in determining eligibility for JTPA.
Providing EIC information to customers. Because the EIC can provide important financial assistance to eligible families, local JTPA service providers, State Employment Service (ES) offices and Unemployment Insurance (UI) offices should encourage individuals to apply for the credit. This is particularly important for individuals who may not otherwise file a Federal income tax return because of low earnings. A person must file to receive EIC even if he or she does not owe tax.
Information on the EIC and the AEIC can routinely be provided as part of the JTPA intake and assessment process, ES application or UI initial claims filing so that potentially eligible individuals may be made aware of the benefits of this credit and the process to obtain the credit.
The IRS expects to have publicity posters and information pamphlets available for distribution about mid-April. Agencies that wish to obtain posters for display in local offices should contact the IRS office in their State regarding availability. In addition, ETA staff is continuing to work with the IRS National Office to obtain material which employment and training offices can distribute to individuals.
It is always important to recognize that detailed responses to questions about eligibility for the credit, the filing process, and other information should be referred to the IRS. Employment and Training offices should not be or appear to be providing tax advice or services.
Action. State JTPA Liaisons, Workers Adjustment Liaisons, and SESA Administrators should assure that customers receive the EIC information, as appropriate.
Inquiries. Questions regarding this TEIN should be directed to Robert Easley in OJTP on (202) 219-6825, John Both in USES on (202) 219-4389 or Betty Castillo in UIS on (202) 219-5616.