Notifying Employees About the Earned Income Tax Credit

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One of your responsibilities as an employer is notifying employees of specific tax situations that can affect them. One of these situations is a notification about the earned income tax credit. 

The Earned Income Tax Credit

The Earned Income Tax Credit (EIC) is a refundable tax credit for eligible lower-income workers. This tax credit may be taken to directly reduce the person's tax liability. Workers may still receive this credit even if their income is low enough that they don't have to file a tax return. 

IRS Notice 797 is a notice to taxpayers about the EIC, in a nutshell, including eligibility and how to claim it.

IRS Publication 596 has more details about the EIC.

The IRS EITC Assistant walks users through the process of determining eligibility and estimating the amount of credit.

Eligible employees may get a refund of the EIC amount if it is more than the tax they owe. That's where you come in as the employer.

Your Responsibility to Notify Employees

As an employer, you have a responsibility to notify employees about this tax credit. Specifically, the IRS requires you to notify employees who don't have federal income tax withheld.

You are encouraged to notify each employee whose wages for the year are less than a specific amount, depending on the employee's filing status, that he or she may be eligible for the EIC. This number changes each year. See IRS Publication 1015 for the current year to see the current amount.

Your responsibility as an employer stops with notification to employees. if the employee wants to make a change in withholding, you can give them a W-4 form. You don't have to help an employee with the EITC application process.

How and When to Notify Employees

Which Employees?

You must notify every employee who

  • Worked for you during the year, and
  • Who didn't have federal income tax withheld from their pay.

But you don't have to notify any employee who claimed exemption from withholding. You can find the information about claiming an exemption on the employee's W-4 form that they signed when they were hired.

How Do I Notify Employees?

You can give the notice to employees in several ways:

  • By handing them the notice personally,
  • By mailing the notice to their address, or
  • By including the notice with their W-2 form.

The easiest way to meet the notification requirement is to include a notice about the EIC on the employee's W-2 form, the wage and tax statement you provide in January of each year. Include the notice on the back of Copy B (the copy that the employee files with the federal income tax return). By placing the notice on the back of Copy B, you are also notifying the IRS of your compliance with this requirement.

You must give each employee a copy of the notice in one of the ways listed above. You can't just post the notice on the employee bulletin board, although you can post the notice in addition to making sure each eligible employee has a copy.

When Must I Give Employees the Notice?

You are in compliance with this regulation if you have provided employees with this notice on their W-2 or a substitute W-2 no later than the W-2 due date, January 31 of the year after the tax year. If you are giving the employee a W-2 for 2019, you must notify employees by giving them the notice with their W-2 forms by January 31, 2020.

If an employee doesn't receive a W-2 form, you must give them the notice by February 7. 

What Must I Tell the Employees?

Give employees with IRS Notice 797 (or a copy with this exact wording) which explains:

  • What the Earned Income Tax Credit is,
  • How to qualify this tax credit,
  • Who is a qualified child, and
  • How to claim the tax credit. 

More Information About the EITC

The IRS has a list of questions and answers about the Earned Income Tax Credit. The IRS also has a toolkit of information for you to share with employees, to explain this tax credit.