
From the U.S. Code Online via GPO Access
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[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC3507]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                      Subtitle C--Employment Taxes
 
       CHAPTER 25--GENERAL PROVISIONS RELATING TO EMPLOYMENT TAXES
 
Sec. 3507. Advance payment of earned income credit


(a) General rule

    Except as otherwise provided in this section, every employer making 
payment of wages to an employee with respect to whom an earned income 
eligibility certificate is in effect shall, at the time of paying such 
wages, make an additional payment to such employee equal to such 
employee's earned income advance amount.

(b) Earned income eligibility certificate

    For purposes of this title, an earned income eligibility certificate 
is a statement furnished by an employee to the employer which--
        (1) certifies that the employee will be eligible to receive the 
    credit provided by section 32 for the taxable year,
        (2) certifies that the employee has 1 or more qualifying 
    children (within the meaning of section 32(c)(3)) for such taxable 
    year,
        (3) certifies that the employee does not have an earned income 
    eligibility certificate in effect for the calendar year with respect 
    to the payment of wages by another employer, and
        (4) states whether or not the employee's spouse has an earned 
    income eligibility certificate in effect.

For purposes of this section, a certificate shall be treated as being in 
effect with respect to a spouse if such a certificate will be in effect 
on the first status determination date following the date on which the 
employee furnishes the statement in question.

(c) Earned income advance amount

                           (1) In general

        For purposes of this title, the term ``earned income advance 
    amount'' means, with respect to any payroll period, the amount 
    determined--
            (A) on the basis of the employee's wages from the employer 
        for such period, and
            (B) in accordance with tables prescribed by the Secretary.

    In the case of an employee who is a member of the Armed Forces of 
    the United States, the earned income advance amount shall be 
    determined by taking into account such employee's earned income as 
    determined for purposes of section 32.

                      (2) Advance amount tables

        The tables referred to in paragraph (1)(B)--
            (A) shall be similar in form to the tables prescribed under 
        section 3402 and, to the maximum extent feasible, shall be 
        coordinated with such tables, and
            (B) if the employee is not married, or if no earned income 
        eligibility certificate is in effect with respect to the spouse 
        of the employee, shall treat the credit provided by section 32 
        as if it were a credit--
                (i) of not more than 60 percent of the credit percentage 
            in effect under section 32(b)(1) for an eligible individual 
            with 1 qualifying child and with earned income not in excess 
            of the earned income amount in effect under section 32(b)(2) 
            for such an eligible individual, which
                (ii) phases out at 60 percent of the phaseout percentage 
            in effect under section 32(b)(1) for such an eligible 
            individual between the phaseout amount in effect under 
            section 32(b)(2) for such an eligible individual and the 
            amount of earned income at which the credit under section 
            32(a) phases out for such an eligible individual, or

            (C) if an earned income eligibility certificate is in effect 
        with respect to the spouse of the employee, shall treat the 
        credit as if it were a credit determined under subparagraph (B) 
        by substituting \1/2\ of the amounts of earned income described 
        in such subparagraph for such amounts.

(d) Payments to be treated as payments of withholding and FICA taxes

                           (1) In general

        For purposes of this title, payments made by an employer under 
    subsection (a) to his employees for any payroll period--
            (A) shall not be treated as the payment of compensation, and
            (B) shall be treated as made out of--
                (i) amounts required to be deducted and withheld for the 
            payroll period under section 3401 (relating to wage 
            withholding), and
                (ii) amounts required to be deducted for the payroll 
            period under section 3102 (relating to FICA employee taxes), 
            and
                (iii) amounts of the taxes imposed for the payroll 
            period under section 3111 (relating to FICA employer taxes),

        as if the employer had paid to the Secretary, on the day on 
        which the wages are paid to the employees, an amount equal to 
        such payments.

                (2) Advance payments exceed taxes due

        In the case of any employer, if for any payroll period the 
    aggregate amount of earned income advance payments exceeds the sum 
    of the amounts referred to in paragraph (1)(B), each such advance 
    payment shall be reduced by an amount which bears the same ratio to 
    such excess as such advance payment bears to the aggregate amount of 
    all such advance payments.

             (3) Employer may make full advance payments

        The Secretary shall prescribe regulations under which an 
    employer may elect (in lieu of any application of paragraph (2))--
            (A) to pay in full all earned income advance amounts, and
            (B) to have additional amounts paid by reason of this 
        paragraph treated as the advance payment of taxes imposed by 
        this title.

                (4) Failure to make advance payments

        For purposes of this title (including penalties), failure to 
    make any advance payment under this section at the time provided 
    therefor shall be treated as the failure at such time to deduct and 
    withhold under chapter 24 an amount equal to the amount of such 
    advance payment.

(e) Furnishing and taking effect of certificates

    For purposes of this section--

                  (1) When certificate takes effect

        (A) First certificate furnished

            An earned income eligibility certificate furnished the 
        employer in cases in which no previous such certificate had been 
        in effect for the calendar year shall take effect as of the 
        beginning of the first payroll period ending, or the first 
        payment of wages made without regard to a payroll period, on or 
        after the date on which such certificate is so furnished (or if 
        later, the first day of the calendar year for which furnished).

        (B) Later certificate

            An earned income eligibility certificate furnished the 
        employer in cases in which a previous such certificate had been 
        in effect for the calendar year shall take effect with respect 
        to the first payment of wages made on or after the first status 
        determination date which occurs at least 30 days after the date 
        on which such certificate is so furnished, except that at the 
        election of the employer such certificate may be made effective 
        with respect to any payment of wages made on or after the date 
        on which such certificate is so furnished. For purposes of this 
        section, the term ``status determination date'' means January 1, 
        May 1, July 1, and October 1 of each year.

        (2) Period during which certificate remains in effect

        An earned income eligibility certificate which takes effect 
    under this section for any calendar year shall continue in effect 
    with respect to the employee during such calendar year until revoked 
    by the employee or until another such certificate takes effect under 
    this section.

                        (3) Change of status

        (A) Requirement to revoke or furnish new certificate

            If, after an employee has furnished an earned income 
        eligibility certificate under this section, there has been a 
        change of circumstances which has the effect of--
                (i) making the employee ineligible for the credit 
            provided by section 32 for the taxable year, or
                (ii) causing an earned income eligibility certificate to 
            be in effect with respect to the spouse of the employee,

        the employee shall, within 10 days after such change in 
        circumstances, furnish the employer with a revocation of such 
        certificate or with a new certificate (as the case may be). Such 
        a revocation (or such a new certificate) shall take effect under 
        the rules provided by paragraph (1)(B) for a later certificate 
        and shall be made in such form as the Secretary shall by 
        regulations prescribe.

        (B) Certificate no longer in effect

            If, after an employee has furnished an earned income 
        eligibility certificate under this section which certifies that 
        such a certificate is in effect with respect to the spouse of 
        the employee, such a certificate is no longer in effect with 
        respect to such spouse, then the employee may furnish the 
        employer with a new earned income eligibility certificate.

                (4) Form and contents of certificate

        Earned income eligibility certificates shall be in such form and 
    contain such other information as the Secretary may by regulations 
    prescribe.

                      (5) Taxable year defined

        The term ``taxable year'' means the last taxable year of the 
    employee under subtitle A beginning in the calendar year in which 
    the wages are paid.

(f) Internal Revenue Service notification

    The Internal Revenue Service shall take such steps as may be 
appropriate to ensure that taxpayers who have 1 or more qualifying 
children and who receive a refund of the credit under section 32 are 
aware of the availability of earned income advance amounts under this 
section.

(Added Pub. L. 95-600, title I, Sec. 105(b)(1), Nov. 6, 1978, 92 Stat. 
2773; amended Pub. L. 97-248, title III, Secs. 307(a)(3), 308(a), Sept. 
3, 1982, 96 Stat. 589, 591; Pub. L. 98-67, title I, Sec. 102(a), Aug. 5, 
1983, 97 Stat. 369; Pub. L. 98-369, div. A, title IV, Sec. 474(r)(30), 
title X, Sec. 1042(d)(3), (4), July 18, 1984, 98 Stat. 845, 1044; Pub. 
L. 99-514, title I, Sec. 111(d)(2), (3), Oct. 22, 1986, 100 Stat. 2108; 
Pub. L. 101-508, title XI, Sec. 11111(c), Nov. 5, 1990, 104 Stat. 1388-
412; Pub. L. 103-66, title XIII, Sec. 13131(d)(4)-(6), Aug. 10, 1993, 
107 Stat. 435; Pub. L. 103-465, title VII, Sec. 721(c), Dec. 8, 1994, 
108 Stat. 5002.)


                               Amendments

    1994--Subsec. (c)(1). Pub. L. 103-465 inserted concluding 
provisions.
    1993--Subsec. (b)(2) to (4). Pub. L. 103-66, Sec. 13131(d)(4), added 
par. (2) and redesignated former pars. (2) and (3) as (3) and (4), 
respectively.
    Subsec. (c)(2)(B)(i), (ii). Pub. L. 103-66, Sec. 13131(d)(5), added 
cls. (i) and (ii) and struck out former cls. (i) and (ii) which read as 
follows:
    ``(i) of not more than the credit percentage under section 32(b)(1) 
(without regard to subparagraph (D) thereof) for an eligible individual 
with 1 qualifying child and with earned income not in excess of the 
amount of earned income taken into account under section 32(a)(1), which
    ``(ii) phases out between the amount of earned income at which the 
phaseout begins under section 32(b)(1)(B)(ii) and the amount of income 
at which the credit under section 32(a)(1) phases out for an eligible 
individual with 1 qualifying child, or''.
    Subsec. (f). Pub. L. 103-66, Sec. 13131(d)(6), added subsec. (f).
    1990--Subsec. (c)(2)(B), (C). Pub. L. 101-508 amended subpars. (B) 
and (C) generally. Prior to amendment, subpars. (B) and (C) read as 
follows:
    ``(B) if the employee is not married, or if no earned income 
eligibility certificate is in effect with respect to the spouse of the 
employee, shall treat the credit provided by section 32 as if it were a 
credit--
        ``(i) of not more than 14 percent of earned income not in excess 
    of the amount of earned income taken into account under section 
    32(a), which
        ``(ii) phases out between the amount of earned income at which 
    the phaseout begins under subsection (b) of section 32 and the 
    amount of earned income at which the credit under section 32 is 
    phased out under such subsection, or
    ``(C) if an earned income eligibility certificate is in effect with 
respect to the spouse of the employee, shall treat the credit provided 
by section 32 as if it were a credit--
        ``(i) of not more than 14 percent of earned income not in excess 
    of \1/2\ of the amount of earned income taken into account under 
    section 32(a), which
        ``(ii) phases out between amounts of earned income which are \1/
    2\ of the amounts of earned income described in subparagraph 
    (B)(ii).''
    1986--Subsec. (c)(2)(B). Pub. L. 99-514, Sec. 111(d)(2), added cls. 
(i) and (ii) and struck out former cls. (i) and (ii) which read as 
follows:
    ``(i) of not more than 11 percent of the first $5,000 of earned 
income, which
    ``(ii) phases out between $6,500 and $11,000 of earned income, or''.
    Subsec. (c)(2)(C). Pub. L. 99-514, Sec. 111(d)(3), added cls. (i) 
and (ii) and struck out former cls. (i) and (ii) which read as follows:
    ``(i) of not more than 11 percent of the first $2,500 of earned 
income, which
    ``(ii) phases out between $3,250 and $5,500 of earned income.''
    1984--Subsec. (b)(1). Pub. L. 98-369, Sec. 474(r)(30), substituted 
``section 32'' for ``section 43''.
    Subsec. (c)(2)(B). Pub. L. 98-369, Sec. 474(r)(30), substituted 
``section 32'' for ``section 43'' in provisions preceding cl. (i).
    Subsec. (c)(2)(B)(i). Pub. L. 98-369, Sec. 1042(d)(3), substituted 
``11 percent'' for ``10 percent''.
    Subsec. (c)(2)(B)(ii). Pub. L. 98-369, Sec. 1042(d)(3), substituted 
``$6,500 and $11,000'' for ``$6,000 and $10,000''.
    Subsec. (c)(2)(C). Pub. L. 98-369, Sec. 474(r)(30), substituted 
``section 32'' for ``section 43'' in provisions preceding cl. (i).
    Subsec. (c)(2)(C)(i). Pub. L. 98-369, Sec. 1042(d)(4), substituted 
``11 percent'' for ``10 percent''.
    Subsec. (c)(2)(C)(ii). Pub. L. 98-369, Sec. 1042(d)(4), substituted 
``$3,250 and $5,500'' for ``$3,000 and $5,000''.
    Subsec. (c)(3)(A)(i). Pub. L. 98-369, Sec. 474(r)(30), substituted 
``section 32'' for ``section 43''.
    1983--Subsec. (d)(4). Pub. L. 98-67 repealed amendments made by Pub. 
L. 97-248. See 1982 Amendment note below.
    1982--Subsec. (d)(4). Pub. L. 97-248 provided that, applicable to 
payments of interest, dividends, and patronage dividends paid or 
credited after June 30, 1983, par. (4) is amended by inserting 
``subchapter A of'' before ``chapter 24''. Section 102(a), (b) of Pub. 
L. 98-67, title I, Aug. 5, 1983, 97 Stat. 369, repealed subtitle A 
(Secs. 301-308) of title III of Pub. L. 97-248 as of the close of June 
30, 1983, and provided that the Internal Revenue Code of 1954 [now 1986] 
[this title] shall be applied and administered (subject to certain 
exceptions) as if such subtitle A (and the amendments made by such 
subtitle A) had not been enacted.


                    Effective Date of 1994 Amendment

    Section 721(d)(2) of Pub. L. 103-465 provided that: ``The amendments 
made by subsections (b) and (c) [amending this section and section 6051 
of this title] shall apply to remuneration paid after December 31, 
1994.''


                    Effective Date of 1993 Amendment

    Amendment by Pub. L. 103-66 applicable to taxable years beginning 
after Dec. 31, 1993, see section 13131(e) of Pub. L. 103-66, set out as 
a note under section 32 of this title.


                    Effective Date of 1990 Amendment

    Amendment by Pub. L. 101-508 applicable to taxable years beginning 
after Dec. 31, 1990, see section 11111(f) of Pub. L. 101-508, set out as 
a note under section 32 of this title.


                    Effective Date of 1986 Amendment

    Amendment by Pub. L. 99-514 applicable to taxable years beginning 
after Dec. 31, 1986, see section 151(a) of Pub. L. 99-514, set out as a 
note under section 1 of this title.


                    Effective Date of 1984 Amendment

    Amendment by section 474(r)(30) of Pub. L. 98-369 applicable to 
taxable years beginning after Dec. 31, 1983, and to carrybacks from such 
years, see section 475(a) of Pub. L. 98-369, set out as a note under 
section 21 of this title.
    Amendment by section 1042(d)(3), (4) of Pub. L. 98-369 applicable to 
taxable years beginning after Dec. 31, 1984, see section 1042(e) of Pub. 
L. 98-369, set out as a note under section 32 of this title.


                             Effective Date

    Section 105(g)(2) of Pub. L. 95-600, as amended by Pub. L. 96-222, 
title I, Sec. 101(a)(2)(D), Apr. 1, 1980, 94 Stat. 195, provided that: 
``The amendments made by subsections (b), (c), and (e) [enacting this 
section and amending sections 6051 and 6302 of this title] shall apply 
to remuneration paid after June 30, 1979.''


                        Study of Advance Payments

    Section 11113 of title XI of Pub. L. 101-508 provided that:
    ``(a) In General.--The Comptroller General of the United States 
shall, in consultation with the Secretary of the Treasury, conduct a 
study of advance payments required by section 3507 of the Internal 
Revenue Code of 1986 to determine--
        ``(1) the effectiveness of the advance payment system (including 
    an analysis of why so few employees take advantage of such system), 
    and
        ``(2) the manner in which such system can be implemented to 
    alleviate administrative complexity, if any, for small business, and
        ``(3) if there are any other problems in the administration of 
    such system.
    ``(b) Report.--Not later than 1 year after the date of the enactment 
of this title [Nov. 5, 1990], the Comptroller shall report the results 
of the study conducted under subsection (a), together with any 
recommendations, to the Committee on Finance of the United States Senate 
and the Committee on Ways and Means of the House of Representatives.''

                  Section Referred to in Other Sections

    This section is referred to in sections 32, 6012, 6051, 6302 of this 
title; title 7 section 2014; title 42 sections 653, 1382a, 1382b.
