The Education Jobs and Medicaid Assistance Act of 2010 (Education Assistance Act) provides approximately $1.1 billion in additional funding for education jobs and Medicaid shortfalls by eliminating the advanced payment option for the earned income credit (EIC) for tax years beginning after December 31, 2010.

Prior to 2011, some employees elected to receive periodic advanced payments of a portion of the EIC as additions to their wages. These advanced EIC payments were then deducted from the employer’s employment tax liabilities. The advanced payment of the EIC was intended to alleviate poverty throughout the year and provide a more timely work incentive for the employee.

The elimination of the advanced payment option for the EIC is projected to impact a relatively small number of taxpayers. Despite the Internal Revenue Service’s efforts to increase participation, only about three percent of eligible EIC recipients made the advanced payment election. The Obama administration recommended the elimination of the advanced EIC, citing existing non-compliance issues and significant administrative cost savings for both employers and the IRS due to its removal.

Employers are advised to inform their employees of this change in a timely manner before the end of 2010.