Advanced Earned Income Credit

What is Advanced Earned Income Credit?

The Advanced Earned Income Credit is something that used to benefit low-income taxpayers once they filed their tax returns. Those taxpayers had to fill the Form W-5 (an IRS or Internal Revenue Service form) as ordained by the federal government as a part of the process. Once they did so, they received the Advanced EIC payment certificates.

Essentially, the Advanced EIC is a tax credit program that used to give low-income taxpayers some tax benefits according to their eligibility. The primary eligibility typically revolved around factors such as family size and income level.  

The Advanced EIC was preceded by the Earned Income Credit which used to pay a lump sum to low-income taxpayers upon filing tax returns. But the Advanced EIC was introduced as a better and more effective program to help those in need of financial assistance.  

Eligibility for Advanced Earned Income Credit (EIC)

The following categories of individuals as well as group members and family dependents are eligible for the Earned Income Tax Credit (EITC) based on their income and tax rules: 

• A single taxpayer who earns less than $21,430 in a year with zero dependents can qualify for a maximum EITC worth $1,502, depending on their adjusted gross income. 
• A married couple who filed a tax return jointly with two children (qualifying dependents) may claim up to $6,728 in EITC, given their yearly income is less than $53,865.
• Married couples can qualify for the EITC separately if they file taxes separately. However, they both have to qualify by meeting the ARPA (American Rescue Plan Act) requirements. 
• As for an investor, in order to qualify for the EITC, the investment return shouldn’t exceed $10,000, as per IRS.  
• A special EITC rule is applicable for the clergy and military members who are stationed abroad.

Beginning of the Advanced Earned Income Credit 

The Earned Income Credit was established back in 1975, designed to help low-income wage earners with qualified dependents like children. It was introduced by the government to encourage people to engage in work and receive some benefits from the government at the same time. 

However, federal officials and lawmakers wanted a better alternative whereby taxpayers could receive periodic payments instead of a lump sum amount. Hence, the EIC program was superseded by the Advanced Earned Income Credit program in 1978.

The End of the Advanced EIC

The Advanced EIC first came to a halt during the Obama administration. I 2010, to be precise. The main reason it was repealed by the administration was that it was hardly under use; less than 3% of eligible taxpayers were benefitting from the program, as the Tax Foundation reported.  

Besides, there were issues regarding compliance. As the General Accountability Office reported, people who were getting the Advanced EIC benefits weren’t qualified for this program. 

And the percentage of ineligible people went above a surprising 80% of the total number of individuals and groups under this program. Many of them did not even have SSNs (Social Security Numbers). 

What Substituted the Advanced EIC Option?

Technically speaking, nothing new came in to substitute the Advanced EIC. However, the former program, EIC, remained effective and still pays the eligible taxpayers within the low-income bracket on their returns. 

Challenges of the Advanced EIC

Challenges that prevented the Advanced Earned Income Credit program from becoming a success include: 

• The Advanced EIC program never become very well-known among low-income people, so the expected benefit wasn’t availed by them. 
• Most of the people who were receiving the Advanced EIC benefits were ineligible for them.
• Many employees claimed that they had to make double payments of the money they’d paid during submitting their tax forms.