January 2008

New Employee Notice

Must Be Delivered This Month!

AB 650 Employer Required Notification:
Earned Income Tax Credit

FAQ Regarding the New EITC Notice

Q: Which employers are covered?
A: Almost all California employers. If the employer is required to pay EDD unemployment insurance tax, it is covered by this statute. (Note: certain employers are exempt from the requirements of unemployment insurance tax.)

Q: What must the notice state?
A: The law quotes the exact language that must be provided to employees.

Q: Where can I get a compliant form?
A: From Barker Olmsted & Barnier, of course! We have posted the language on our website; see the end of this article.

Q: When and how must the notice be given?
A: The notice should given in writing. It should be either directly handed to the employee, or mailed to his/her address or record once a year along with the Form W-2 (Wage and Tax Statement) or Form 1099 (Miscellaneous Income), or other annual wage summary. Technically, the law permits employers to send the notice within one week before or after the W-2 or 1099 is sent—but undoubtedly a desire for efficiency will prompt employers to send the notice along with the tax form. (Note: the deadline for sending W-2s to employees is January 31st of each year.)

Q: Is sending the notice by email or interoffice mail sufficient?
A: No. Hand it to the employee or mail it. The law also notes that posting the notice in the workplace is not sufficient.

Q: Do I have to give the notice to all employees, even if I know that some of them earn too much to qualify for EITC?
A: Yes.

Q: Are there any record keeping requirements?
A: No, the statute does not require the employer to keep records that the notice was given. However, it is a recommended practice to do so anyway, in order to establish compliance.

Q: What is the penalty for failing to comply?
A: The new law does not specify a penalty. However, the tax code generally permits the state to bring enforcement actions, and the code also generally contains provisions for sanctions and penalties. Try not to become a test case on this one!

Q: Why did California enact this law?
A: Because most eligible taxpayers don’t claim the credit. The required notice may prompt more taxpayers to do so.

Congress created the federal earned income tax credit (EITC) in 1975 to offset the adverse effects of the Medicare and social security payroll taxes on working poor families and to encourage low-income workers to seek employment rather than welfare.

Due to a relatively low percentage of federal earned income tax credit eligible persons that participate in the federal Earned Income Tax Credit program, hundreds of millions of federal dollars go unclaimed by the working poor in California.

The legislature states that the bill was enacted in order to “alleviate the tax burden on working poor persons and families, to enhance the wages and income of working poor persons and families, to ensure that California receives its share of the federal money available in the federal Earned Income Tax Credit program, and to inject additional federal money into the California economy.”

Free Sample Form - Click Below

This article, and the form, is intended as a brief overview of the law and are not intended to substitute as legal advice. Any questions or concerns regarding any statute or case law should be addressed to a licensed attorney. Copyright © 2007 by Barker Olmsted & Barnier, APLC. All rights reserved.