What is a W-5 Form?

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If you’ve heard of the Earned Income Credit (EIC), the you may be familiar with what a W-5 tax form is.  EIC is a tax credit for certain workers. It reduces the taxes owed by those workers, and may result in a refund even if a worker owes no tax.  Some workers are even eligible to receive their EIC in advance with their pay. To do so, a worker must fill out a Form W-5.

Before you go running to download the form and claim your advance credit, let’s take a second to discuss who qualifies for advance EIC payments.  In order to claim a credit in advance, the following three requirements must be met:

(1) You must have a valid Social Security number issued by the Social Security Administration.  The same goes for your spouse, if you’re filing a joint return.

(2) You must expect to have a qualifying child.  To be considered a qualifying child, the person must meet certain requirements:

• The child must be a son, daughter, stepchild, foster child, brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of those persons.  (For example, your grandchild, niece, or nephew)
• The child must be under age 19 at the end of the tax year and younger than the filer.
• If the child is a student, they must be under 24, and younger than the filer.
• If the child is permanently disabled, they may be any age.
• The child must live with you, in the United States, for over half of the year. There are exceptions for filers serving abroad in the military, and for children in odd circumstances. (those who are born or die during the tax year, those kidnapped, etc.) Temporary time away for camps, vacation, etc, are considered to be time lived with the filer.
• The child does not file a joint return for the tax year, or only files a joint return as a claim for refund.
• If you do not have a qualifying child, you may still qualify for EIC but will not be eligible for advance payments.

(3) You must expect that your earned income and adjusted gross income will be less than $35,535 (for tax year 2010) or $40,545 if you plan to file a joint return. (Those numbers rise depending on the number of qualifying children.)

Now that you know if you qualify, it’s up to you to determine whether you’d like to receive the credit all at once when you file, or in small increments throughout your paychecks for the year.  The good news is that Form W-5 is a no frills, easy form to fill out.  All you need is your name, Social Security number, and a signature to attest that you expect to be able to claim EIC for that year.  Fill it out and return it to your employer, and your work is done.

If you need help filing your taxes this year, you may want to consider both Turbo Tax and H&R Block.  Their free online tax software can make your tax nightmares disappear.

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Rob Berger

Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

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