Internal Revenue Code:Sec. 3507. Advance payment of earned income credit

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Contents


Location in Internal Revenue Code


     TITLE 26 - INTERNAL REVENUE CODE
      Subtitle C - Employment Taxes
       CHAPTER 25 - GENERAL PROVISIONS RELATING TO EMPLOYMENT TAXES
     

Statute

    Sec. 3507. Advance payment of earned income credit
 
    (a) General rule
      Except as otherwise provided in this section, every employer
    making payment of wages to an employee with respect to whom an
    earned income eligibility certificate is in effect shall, at the
    time of paying such wages, make an additional payment to such
    employee equal to such employee's earned income advance amount.
    (b) Earned income eligibility certificate
      For purposes of this title, an earned income eligibility
    certificate is a statement furnished by an employee to the employer
    which -
        (1) certifies that the employee will be eligible to receive the
      credit provided by section 32 for the taxable year,
        (2) certifies that the employee has 1 or more qualifying
      children (within the meaning of section 32(c)(3)) for such
      taxable year,
        (3) certifies that the employee does not have an earned income
      eligibility certificate in effect for the calendar year with
      respect to the payment of wages by another employer, and
        (4) states whether or not the employee's spouse has an earned
      income eligibility certificate in effect.
    For purposes of this section, a certificate shall be treated as
    being in effect with respect to a spouse if such a certificate will
    be in effect on the first status determination date following the
    date on which the employee furnishes the statement in question.
    (c) Earned income advance amount
      (1) In general
        For purposes of this title, the term ''earned income advance
      amount'' means, with respect to any payroll period, the amount
      determined -
          (A) on the basis of the employee's wages from the employer
        for such period, and
          (B) in accordance with tables prescribed by the Secretary.
      In the case of an employee who is a member of the Armed Forces of
      the United States, the earned income advance amount shall be
      determined by taking into account such employee's earned income
      as determined for purposes of section 32.
      (2) Advance amount tables
        The tables referred to in paragraph (1)(B) -
          (A) shall be similar in form to the tables prescribed under
        section 3402 and, to the maximum extent feasible, shall be
        coordinated with such tables, and
          (B) if the employee is not married, or if no earned income
        eligibility certificate is in effect with respect to the spouse
        of the employee, shall treat the credit provided by section 32
        as if it were a credit -
            (i) of not more than 60 percent of the credit percentage in
          effect under section 32(b)(1) for an eligible individual with
          1 qualifying child and with earned income not in excess of
          the earned income amount in effect under section 32(b)(2) for
          such an eligible individual, which
            (ii) phases out at 60 percent of the phaseout percentage in
          effect under section 32(b)(1) for such an eligible individual
          between the phaseout amount in effect under section 32(b)(2)
          for such an eligible individual and the amount of earned
          income at which the credit under section 32(a) phases out for
          such an eligible individual, or
          (C) if an earned income eligibility certificate is in effect
        with respect to the spouse of the employee, shall treat the
        credit as if it were a credit determined under subparagraph (B)
        by substituting 1/2 of the amounts of earned income described
        in such subparagraph for such amounts.
    (d) Payments to be treated as payments of withholding and FICA
        taxes
      (1) In general
        For purposes of this title, payments made by an employer under
      subsection (a) to his employees for any payroll period -
          (A) shall not be treated as the payment of compensation, and
          (B) shall be treated as made out of -
            (i) amounts required to be deducted and withheld for the
          payroll period under section 3401 (relating to wage
          withholding), and
            (ii) amounts required to be deducted for the payroll period
          under section 3102 (relating to FICA employee taxes), and
            (iii) amounts of the taxes imposed for the payroll period
          under section 3111 (relating to FICA employer taxes),
        as if the employer had paid to the Secretary, on the day on
        which the wages are paid to the employees, an amount equal to
        such payments.
      (2) Advance payments exceed taxes due
        In the case of any employer, if for any payroll period the
      aggregate amount of earned income advance payments exceeds the
      sum of the amounts referred to in paragraph (1)(B), each such
      advance payment shall be reduced by an amount which bears the
      same ratio to such excess as such advance payment bears to the
      aggregate amount of all such advance payments.
      (3) Employer may make full advance payments
        The Secretary shall prescribe regulations under which an
      employer may elect (in lieu of any application of paragraph (2))
      -
          (A) to pay in full all earned income advance amounts, and
          (B) to have additional amounts paid by reason of this
        paragraph treated as the advance payment of taxes imposed by
        this title.
      (4) Failure to make advance payments
        For purposes of this title (including penalties), failure to
      make any advance payment under this section at the time provided
      therefor shall be treated as the failure at such time to deduct
      and withhold under chapter 24 an amount equal to the amount of
      such advance payment.
    (e) Furnishing and taking effect of certificates
      For purposes of this section -
      (1) When certificate takes effect
        (A) First certificate furnished
          An earned income eligibility certificate furnished the
        employer in cases in which no previous such certificate had
        been in effect for the calendar year shall take effect as of
        the beginning of the first payroll period ending, or the first
        payment of wages made without regard to a payroll period, on or
        after the date on which such certificate is so furnished (or if
        later, the first day of the calendar year for which furnished).
        (B) Later certificate
          An earned income eligibility certificate furnished the
        employer in cases in which a previous such certificate had been
        in effect for the calendar year shall take effect with respect
        to the first payment of wages made on or after the first status
        determination date which occurs at least 30 days after the date
        on which such certificate is so furnished, except that at the
        election of the employer such certificate may be made effective
        with respect to any payment of wages made on or after the date
        on which such certificate is so furnished.  For purposes of
        this section, the term ''status determination date'' means
        January 1, May 1, July 1, and October 1 of each year.
      (2) Period during which certificate remains in effect
        An earned income eligibility certificate which takes effect
      under this section for any calendar year shall continue in effect
      with respect to the employee during such calendar year until
      revoked by the employee or until another such certificate takes
      effect under this section.
      (3) Change of status
        (A) Requirement to revoke or furnish new certificate
          If, after an employee has furnished an earned income
        eligibility certificate under this section, there has been a
        change of circumstances which has the effect of -
            (i) making the employee ineligible for the credit provided
          by section 32 for the taxable year, or
            (ii) causing an earned income eligibility certificate to be
          in effect with respect to the spouse of the employee,
        the employee shall, within 10 days after such change in
        circumstances, furnish the employer with a revocation of such
        certificate or with a new certificate (as the case may be).
        Such a revocation (or such a new certificate) shall take effect
        under the rules provided by paragraph (1)(B) for a later
        certificate and shall be made in such form as the Secretary
        shall by regulations prescribe.
        (B) Certificate no longer in effect
          If, after an employee has furnished an earned income
        eligibility certificate under this section which certifies that
        such a certificate is in effect with respect to the spouse of
        the employee, such a certificate is no longer in effect with
        respect to such spouse, then the employee may furnish the
        employer with a new earned income eligibility certificate.
      (4) Form and contents of certificate
        Earned income eligibility certificates shall be in such form
      and contain such other information as the Secretary may by
      regulations prescribe.
      (5) Taxable year defined
        The term ''taxable year'' means the last taxable year of the
      employee under subtitle A beginning in the calendar year in which
      the wages are paid.
    (f) Internal Revenue Service notification
      The Internal Revenue Service shall take such steps as may be
    appropriate to ensure that taxpayers who have 1 or more qualifying
    children and who receive a refund of the credit under section 32
    are aware of the availability of earned income advance amounts
    under this section.
 

Sources

    (Added Pub. L. 95-600, title I, Sec. 105(b)(1), Nov. 6, 1978, 92
    Stat. 2773; amended Pub. L. 97-248, title III, Sec. 307(a)(3),
    308(a), Sept. 3, 1982, 96 Stat. 589, 591; Pub. L. 98-67, title I,
    Sec. 102(a), Aug. 5, 1983, 97 Stat. 369; Pub. L. 98-369, div.  A,
    title IV, Sec. 474(r)(30), title X, Sec. 1042(d)(3), (4), July 18,
    1984, 98 Stat. 845, 1044; Pub. L. 99-514, title I, Sec. 111(d)(2),
    (3), Oct. 22, 1986, 100 Stat. 2108; Pub. L. 101-508, title XI, Sec.
    11111(c), Nov. 5, 1990, 104 Stat. 1388-412; Pub. L. 103-66, title
    XIII, Sec. 13131(d)(4)-(6), Aug. 10, 1993, 107 Stat. 435; Pub. L.
    103-465, title VII, Sec. 721(c), Dec. 8, 1994, 108 Stat. 5002.)
 

Miscellaneous

                                 AMENDMENTS
      1994 - Subsec. (c)(1). Pub. L. 103-465 inserted concluding
    provisions.
      1993 - Subsec. (b)(2) to (4). Pub. L. 103-66, Sec. 13131(d)(4),
    added par. (2) and redesignated former pars. (2) and (3) as (3) and
    (4), respectively.
      Subsec. (c)(2)(B)(i), (ii). Pub. L. 103-66, Sec. 13131(d)(5),
    added cls. (i) and (ii) and struck out former cls. (i) and (ii)
    which read as follows:
      ''(i) of not more than the credit percentage under section
    32(b)(1) (without regard to subparagraph (D) thereof) for an
    eligible individual with 1 qualifying child and with earned income
    not in excess of the amount of earned income taken into account
    under section 32(a)(1), which
      ''(ii) phases out between the amount of earned income at which
    the phaseout begins under section 32(b)(1)(B)(ii) and the amount of
    income at which the credit under section 32(a)(1) phases out for an
    eligible individual with 1 qualifying child, or''.
      Subsec. (f). Pub. L. 103-66, Sec. 13131(d)(6), added subsec. (f).
      1990 - Subsec. (c)(2)(B), (C). Pub. L. 101-508 amended subpars.
    (B) and (C) generally.  Prior to amendment, subpars. (B) and (C)
    read as follows:
      ''(B) if the employee is not married, or if no earned income
    eligibility certificate is in effect with respect to the spouse of
    the employee, shall treat the credit provided by section 32 as if
    it were a credit -
        ''(i) of not more than 14 percent of earned income not in
      excess of the amount of earned income taken into account under
      section 32(a), which
        ''(ii) phases out between the amount of earned income at which
      the phaseout begins under subsection (b) of section 32 and the
      amount of earned income at which the credit under section 32 is
      phased out under such subsection, or
      ''(C) if an earned income eligibility certificate is in effect
    with respect to the spouse of the employee, shall treat the credit
    provided by section 32 as if it were a credit -
        ''(i) of not more than 14 percent of earned income not in
      excess of 1/2 of the amount of earned income taken into account
      under section 32(a), which
        ''(ii) phases out between amounts of earned income which are
      1/2 of the amounts of earned income described in subparagraph
      (B)(ii).''
      1986 - Subsec. (c)(2)(B). Pub. L. 99-514, Sec. 111(d)(2), added
    cls. (i) and (ii) and struck out former cls. (i) and (ii) which
    read as follows:
      ''(i) of not more than 11 percent of the first $5,000 of earned
    income, which
      ''(ii) phases out between $6,500 and $11,000 of earned income,
    or''.
      Subsec. (c)(2)(C). Pub. L. 99-514, Sec. 111(d)(3), added cls. (i)
    and (ii) and struck out former cls. (i) and (ii) which read as
    follows:
      ''(i) of not more than 11 percent of the first $2,500 of earned
    income, which
      ''(ii) phases out between $3,250 and $5,500 of earned income.''
      1984 - Subsec. (b)(1). Pub. L. 98-369, Sec. 474(r)(30),
    substituted ''section 32'' for ''section 43''.
      Subsec. (c)(2)(B). Pub. L. 98-369, Sec. 474(r)(30), substituted
    ''section 32'' for ''section 43'' in provisions preceding cl. (i).
      Subsec. (c)(2)(B)(i). Pub. L. 98-369, Sec. 1042(d)(3),
    substituted ''11 percent'' for ''10 percent''.
      Subsec. (c)(2)(B)(ii). Pub. L. 98-369, Sec. 1042(d)(3),
    substituted ''$6,500 and $11,000'' for ''$6,000 and $10,000''.
      Subsec. (c)(2)(C). Pub. L. 98-369, Sec. 474(r)(30), substituted
    ''section 32'' for ''section 43'' in provisions preceding cl. (i).
      Subsec. (c)(2)(C)(i). Pub. L. 98-369, Sec. 1042(d)(4),
    substituted ''11 percent'' for ''10 percent''.
      Subsec. (c)(2)(C)(ii). Pub. L. 98-369, Sec. 1042(d)(4),
    substituted ''$3,250 and $5,500'' for ''$3,000 and $5,000''.
      Subsec. (c)(3)(A)(i). Pub. L. 98-369, Sec. 474(r)(30),
    substituted ''section 32'' for ''section 43''.
      1983 - Subsec. (d)(4). Pub. L. 98-67 repealed amendments made by
    Pub. L. 97-248. See 1982 Amendment note below.
      1982 - Subsec. (d)(4). Pub. L. 97-248 provided that, applicable
    to payments of interest, dividends, and patronage dividends paid or
    credited after June 30, 1983, par. (4) is amended by inserting
    ''subchapter A of'' before ''chapter 24''. Section 102(a), (b) of
    Pub. L. 98-67, title I, Aug. 5, 1983, 97 Stat. 369, repealed
    subtitle A (Sec. 301-308) of title III of Pub. L. 97-248 as of the
    close of June 30, 1983, and provided that the Internal Revenue Code
    of 1954 (now 1986) (this title) shall be applied and administered
    (subject to certain exceptions) as if such subtitle A (and the
    amendments made by such subtitle A) had not been enacted.
                      EFFECTIVE DATE OF 1994 AMENDMENT
      Section 721(d)(2) of Pub. L. 103-465 provided that: ''The
    amendments made by subsections (b) and (c) (amending this section
    and section 6051 of this title) shall apply to remuneration paid
    after December 31, 1994.''
                      EFFECTIVE DATE OF 1993 AMENDMENT
      Amendment by Pub. L. 103-66 applicable to taxable years beginning
    after Dec. 31, 1993, see section 13131(e) of Pub. L. 103-66, set
    out as a note under section 32 of this title.
                      EFFECTIVE DATE OF 1990 AMENDMENT
      Amendment by Pub. L. 101-508 applicable to taxable years
    beginning after Dec. 31, 1990, see section 11111(f) of Pub. L.
    101-508, set out as a note under section 32 of this title.
                      EFFECTIVE DATE OF 1986 AMENDMENT
      Amendment by Pub. L. 99-514 applicable to taxable years beginning
    after Dec. 31, 1986, see section 151(a) of Pub. L. 99-514, set out
    as a note under section 1 of this title.
                      EFFECTIVE DATE OF 1984 AMENDMENT
      Amendment by section 474(r)(30) of Pub. L. 98-369 applicable to
    taxable years beginning after Dec. 31, 1983, and to carrybacks from
    such years, see section 475(a) of Pub. L. 98-369, set out as a note
    under section 21 of this title.
      Amendment by section 1042(d)(3), (4) of Pub. L. 98-369 applicable
    to taxable years beginning after Dec. 31, 1984, see section 1042(e)
    of Pub. L. 98-369, set out as a note under section 32 of this
    title.
                               EFFECTIVE DATE
      Section 105(g)(2) of Pub. L. 95-600, as amended by Pub. L.
    96-222, title I, Sec. 101(a)(2)(D), Apr. 1, 1980, 94 Stat. 195,
    provided that: ''The amendments made by subsections (b), (c), and
    (e) (enacting this section and amending sections 6051 and 6302 of
    this title) shall apply to remuneration paid after June 30, 1979.''
                         STUDY OF ADVANCE PAYMENTS
      Section 11113 of title XI of Pub. L. 101-508 provided that:
      ''(a) In General. - The Comptroller General of the United States
    shall, in consultation with the Secretary of the Treasury, conduct
    a study of advance payments required by section 3507 of the
    Internal Revenue Code of 1986 to determine -
        ''(1) the effectiveness of the advance payment system
      (including an analysis of why so few employees take advantage of
      such system), and
        ''(2) the manner in which such system can be implemented to
      alleviate administrative complexity, if any, for small business,
      and
        ''(3) if there are any other problems in the administration of
      such system.
      ''(b) Report. - Not later than 1 year after the date of the
    enactment of this title (Nov. 5, 1990), the Comptroller shall
    report the results of the study conducted under subsection (a),
    together with any recommendations, to the Committee on Finance of
    the United States Senate and the Committee on Ways and Means of the
    House of Representatives.''
 

References

                   SECTION REFERRED TO IN OTHER SECTIONS
      This section is referred to in sections 32, 6012, 6051, 6302 of
    this title; title 7 section 2014; title 42 sections 653, 1382a,
    1382b.
 

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