Employers Required to Deliver Earned Income Tax Credit Notice to California Employees Within One Week of Issuing Annual Wage Summaries

Starting this year, the California Earned Income Tax Credit Information Act requires employers to notify all California employees that they may be eligible for the federal Earned Income Tax Credit (EITC). The purpose of the Act is to facilitate the ability of the working poor to claim EITCs—and, correspondingly, to increase the share of the federal money that California receives under the program.

Under the Act, employers must notify California employees about IRS EITC requirements and notices, such as IRS Notice 797 and Form W-5, within one week before or after delivering an annual wage summary (such as a Form W-2 or 1099) to the employee. This notice may also be delivered at the same time as the annual wage summary. It must be delivered by hand or by regular mail to the employee's last known address; delivery via office mail or bulletin boards does not satisfy the requirements of the Act.

The notice must state as follows, or be substantially similar:

BASED ON YOUR ANNUAL EARNINGS, YOU MAY BE ELIGIBLE TO RECEIVE THE EARNED INCOME TAX CREDIT FROM THE FEDERAL GOVERNMENT. THE EARNED INCOME TAX CREDIT IS A REFUNDABLE FEDERAL INCOME TAX CREDIT FOR LOW-INCOME WORKING INDIVIDUALS AND FAMILIES. THE EARNED INCOME TAX CREDIT HAS NO EFFECT ON CERTAIN WELFARE BENEFITS. IN MOST CASES, EARNED INCOME TAX CREDIT PAYMENTS WILL NOT BE USED TO DETERMINE ELIGIBILITY FOR MEDICAID, SUPPLEMENTAL SECURITY INCOME, FOOD STAMPS, LOW-INCOME HOUSING OR MOST TEMPORARY ASSISTANCE FOR NEEDY FAMILIES PAYMENTS. EVEN IF YOU DO NOT OWE FEDERAL TAXES, YOU MUST FILE A TAX RETURN TO RECEIVE THE EARNED INCOME TAX CREDIT. BE SURE TO FILL OUT THE EARNED INCOME TAX CREDIT FORM IN THE FEDERAL INCOME TAX RETURN BOOKLET. FOR INFORMATION REGARDING YOUR ELIGIBILITY TO RECEIVE THE EARNED INCOME TAX CREDIT, INCLUDING INFORMATION ON HOW TO OBTAIN THE IRS NOTICE 797 OR FORM W-5, OR ANY OTHER NECESSARY FORMS AND INSTRUCTIONS, CONTACT THE INTERNAL REVENUE SERVICE BY CALLING 1-800-829-3676 OR THROUGH ITS WEB SITE AT WWW.IRS.GOV.

Upon employee request, employers must also process a Form W-5, which addresses advance EITC payments, to the extent required under federal law.

W-2 and 1099 forms for the 2007 tax year must be furnished to employees on or before January 31, 2008. As the Act became effective on January 1, 2008, a conservative approach would be to send the EITC notification with the wage summaries sent out by January 31, 2008, or within seven days of sending those wage summaries. The EITC Information Act is found at California Revenue and Taxation Code, Sections 19850 through 19854.