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Employment Development Department
Employment Development Department

Total and Partial Unemployment TPU 460.86

Federal Earned Income Credit

Since 1975, Federal Income Tax Law has granted a tax credit to individuals who are married or head of household with a child living with them and have an annual income below a certain threshold when they file their annual tax returns.

Effective after June 30, 1979, the Federal Tax Reform Act of 1978 eliminates the necessity for persons who qualify for such tax credit to wait until tax filing time to benefit from the credit. By filing a Form W-5 with their employer, persons who qualify can receive advance payment of the tax credit from their employer. The employer in turn reduces its own tax liability by the amounts of tax credit prepayments made.

Like other tax credits, such as the renters tax credit or property tax refund, Earned Income Credit (EIC) payments are not compensation for either State or Federal withholding purposes, nor do they constitute wages for any purposes under the UI Code. Accordingly, such payments should not be included by employers in calculating gross income; they cannot be used to establish monetary entitlement to a claim; they are not reportable under sections 1252 or 1279; and they cannot be used to purge a disqualification or clear a 1277 test.