05-P-015 New Advance Earned Income Credit Tables for 2005 (Supersedes 04-P-019)
|December 10, 2004
|New Advance Earned Income Credit Tables for 2005
|January 1, 2005
|New Advance Earned Income Credit Tables Effective for Paychecks Issued on or After January 1, 2005
The Internal Revenue Service (IRS) has issued the new percentage tables for computing the advance earned income credit (EIC) payments effective for 2005. The attached tables are to be used in computing all advance EIC payments for wages paid on or after January 1, 2005. In order to use the attached tables, income must be annualized. When annualizing income to calculate the advance EIC, multiply federal taxable income for the current bi-weekly pay period by the twenty-six pay periods in the year.
As of this date, the IRS has not released the 2005 Form W-5 - Earned Income Credit Advance Payment Certificate. Once the 2005 W-5 becomes available, notification will be sent to subscribers of the SHARP Infolist. SHARP users interested in subscribing to the Infolist, but who have no yet done so, can subscribe at http://www.da.ks.gov/SHARP/infolist.htm.
The 2004 Form W-5 expires on December 31, 2004. The 2005 Form W-5 must be filed with the employer before advance 2005 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 2005 earned and adjusted gross income will each be less than $31,030.00 for single employees or $33,030.00 if filing jointly (include spouse's income if filing jointly). Employees cannot claim the EIC if planning to file either Form 2555 or Form 2555-EZ (relating foreign earned income). Finally, a nonresident alien may not claim the advance EIC for 2005 unless married to a U.S. citizen or resident and elects to be taxed as a resident alien for all of 2005.
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 1, 2004 to all SHARP employees receiving advance EIC payments in 2004. The notification reminded employees that a new Form W-5 must be submitted to continue the advance EIC payments in 2005. The 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 e-mail address for those employees who lack an individual e-mail 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 20, 2004 to update SHARP with the new EIC information for all employees who submit a new paper Form W-5 for 2005. 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.
The KPAY320 will process in the batch cycle generated the evening of December 20, 2004. This process will search for employees who were sent a W-5 notification. If a new W-5 has not been received, a January 1, 2005 effective-dated row will be inserted in the employee's Tax Data record with an EIC status of 'Not Applicable'. (Please note the KPAY320 process will also update all employees claiming exemption from withholding tax in 2004, if a new W-4 has not been received. The update will place a January 1, 2005 effective-dated row in the employee's tax record with a marital status of 'single' and zero exemptions.)
For any Forms W-5 for 2005 (or Forms W-4 for 2004 for employees claiming exemption from withholding) received between December 21, 2004 and January 1, 2005, agency personnel will need to enter the data with a January 2, 2005 effective date. The data will need to be entered into SHARP by 6:00 p.m. on Friday, January 7, 2005 in order to be reflected in the on-cycle paycheck dated January 14, 2005. 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.
The KPAY320 creates a report (by SHARP agency) that identifies all agency employees whose exempt withholding and/or EIC status was updated in SHARP on the night of December 20, 2004. The report will be available in the agency directory on the MVS on Tuesday, December 21.
The Department of Administration will make all of the necessary changes in the computation of the advance EIC for SHARP agencies. Regent's institutions are responsible for implementing the new advance EIC rates in their respective payroll systems.
Attachment: Advance Earned Income Credit Formulas