Advance earned income credit is a payment of earned income credit during the year to employees who expect to be eligible for the credit. Employers make the payments out of federal income, Social Security and Medicare taxes withheld from the employees’ wages. This IRS program gives employees the benefit of increased take home pay at virtually no cost to employers. Employees can get extra money in their paychecks rather than having to wait until they file their tax return.
To use the AEIC, employers make the advance payments to their employees from the employment taxes they would normally deposit or send to the IRS. Advanced EIC payroll instructions for employers are in the standard IRS publication for employers, The Employers Tax Guide, Circular E. The amount is paid to the employees -- with no income tax withheld. Employers then claim the amount as a timely payment on their quarterly employment tax form (Form 941).