What does IRS Form W-5 allow employees to do?

IRS Form W-5 allows employees to receive the earned income credit (EIC) in advance, which is important for those who qualify for this tax benefit. The earned income credit is a refundable tax credit intended to assist low to moderate-income working individuals and couples, particularly those with children.

When an employee fills out Form W-5 and submits it to their employer, they are requesting that a portion of their EIC be paid directly to them through their paychecks rather than waiting to receive the credit as a tax refund when they file their tax return. This can provide immediate financial relief, making it an effective tool for managing cash flow throughout the year for eligible recipients.

This advance payment option helps to alleviate financial burdens by providing ongoing support, rather than a lump sum at tax time. Having a better understanding of this form is essential for employees who may benefit from it, as it contributes to their overall financial planning and management.