04-P-019 New Tables for Earned Income Credit for 2004 (Supersedes 03-p-028)

DATE:	December 4, 2003
SUBJECT:	New Tables for Earned Income Credit for 2004
EFFECTIVE DATE:	January 1, 2004
CONTACT:	Roger Basinger	(785) 296-5387	Roger.Basinger@da.state.ks.us
APPROVAL:
SUMMARY:	New Earned Income Credit Rates Effective for Paychecks Issued On or After January 1, 2004

The Internal Revenue Service (IRS) has issued the new percentage tables for computing the advance earned income credit (EIC) payments effective for all paychecks issued on or after January 1, 2004. The attached tables have been prepared for use in computing all EIC payments for wages paid on or after January 1, 2004. When calculating EIC by annualizing, 26 pay periods should be used to arrive at an annualized amount.

The Internal Revenue Service has released the 2004 Form W-5, Earned Income Credit Advance Payment Certificate. A copy of the 2004 Form W-5 is attached; the 2003 Form W-5 expires on December 31, 2003. The 2004 Form W-5 must be filed with the employer before advance 2004 payments can begin. Generally, employees have to successfully answer questions listed on page 2 of Form W-5 in order to be eligible for advance payments. In addition to meeting other criteria, advance EIC qualifiers must have at least one qualifying child and expect that 2004 earned and adjusted gross income will each be less than $30,338.00 for single employees or $31,338.00 if filing jointly (include spouses income if filing jointly). Employees cannot claim the EIC if planning to file either Form 2555 or Form 2555-EZ (relating to foreign earned income). Finally, a nonresident alien may not claim the EIC for 2004 unless married to a U.S. citizen or resident and elects to be taxed as a resident alien for all of 2004.

The IRS has established the following three employee status categories: (a) Single or Head of Household, (b) Married Without Spouse Filing Certificate, and (c) Married With Both Spouses Filing Certificate. Married employees must indicate on Form W-5 if their spouse receives advance EIC payments.

An e-mail notification was sent on December 3, 2003 as a reminder to all SHARP employees receiving advanced EIC payments in 2003 that a new Form W-5 must be submitted to continue the EIC payments in 2004. The e-mail notification was sent to the employee's email address listed under 'Update My Profile' in the Employee Self Service Center at https://sharp.state.ks.us/servlets/iclientservlet/ess/?cmd=login. The notification was sent to the agency email address for those employees who lack an individual email address and agencies will need to distribute the notifications to their employees. A list of agency employees receiving the notification was put into the Agency Payroll Workflow Administrator's work list.

Agency personnel have until 6:00 p.m. on December 15, 2003 to update SHARP with the new EIC information for all employees who submit a new paper Form W-5 for 2004. It is important that agency personnel check the 'New W-5 Received' radio button on the employee's 'Federal Tax Data 2' page for the new effective-dated row that is entered. As outlined in Accounts and Reports Informational Circular No. 04-P-017 issued November 18, 2003, the Department of Administration will be processing the KPAY320 on the night of December 15, 2003. This process will update the existing SHARP federal tax data records for all employees claiming the EIC in 2003 in which the 'New W-5 Received' radio button is not checked. The update will insert a January 1, 2004 effective-dated row with an Earned Income Credit status of 'Not applicable'. (Please note, the KPAY320 process will also update all employees claiming exemption from withholding tax in 2003 in which the 'New W-4 Received' radio button is not checked. The update for exempt employees will insert a January 1, 2004 effective-dated row and will update the employee's marital status to 'single' with zero exemptions.)

For any Forms W-5 for 2004 (or Forms W-4 for 2004 for employees claiming exemption from withholding) received after December 15, 2003, agency personnel will need to enter the data with a January 2, 2004 effective date. The data will need to be entered into SHARP by 6:00 p.m. on Wednesday, December 24, 2003 in order to be reflected in the on-cycle paycheck dated January 2, 2004. Please refer to the Employee Payroll Tax Data section of the Payroll module in the on-line CBT (Computer Based Training) for specific instructions on entering employee tax data information and worklist maintenance.

When the KPAY320 process is generated, a report is created which provides a listing to agencies identifying all SHARP employees whose EIC and/or exempt withholding status was updated in SHARP on the night of December 15, 2003. The report will be available in the agency directory on the MVS.

The Department of Administration will make all of the necessary changes in the computation of EIC for SHARP agencies. Regent's institutions are responsible for implementing the new EIC rates in their respective payroll systems.

DB:JJM:rdb

Attachments: Advanced Earned Income Credit Formulas 
W-5 Earned Income Credit Advance Payment Certificate