Advanced Earned Income Credit | Meaning and Definition

What is advanced earned income credit? 

As the name suggests, was a type of earned income credit issued to those individuals who were able to complete the W-5 form issued by the Internal Revenue Service. This was better known as the Earned Income Credit Advance Payment Certificate. It does not exist now, but this policy was applicable while in force.

Now, this credit is closely related to the Earned Income Tax Benefit granted to those employees whose income falls below the lower set limit. 

Those employees who are eligible to get this benefit to receive the earned income credit in advance. To provide this benefit to the eligible employees, deductions are made from federal income, Medicare taxes, and social security by the employers.

Why does the Earned Income Credit Advanced gets Cancelled?

This credit was cancelled in 2010 by President Obama as less than 3% of people were benefiting from this policy. Additionally, there were a lot of issues relating to compliances which also were a driving force in deciding to cancel this policy. It was found that the majority of those receiving this benefit was not even eligible to receive this credit in the first place. To be eligible, prospective candidates needed to fulfill all the laid down criteria; however, it was found that many people did not even fulfill the basic criteria of having a social security number.

The lack of significant positive effects and the gaps in compliance led to the decision to cancel this policy. While it was not replaced by any other policy, the Earned Income Credit policy still stays in place to allow taxpayers to receive money for the taxes they pay. This can be extremely helpful for low-income households.