EIC Update

OPEN SYSTEMS FEDERAL EIC UPDATE

Starting in January 2002, the IRS has added a new filing status for claiming the advanced Earned Income Credit (EIC). As you know, an employee may submit a form W-5 to his/her employer requesting advanced EIC payments. These payments take the form of a credit to federal income tax withheld and have the effect of increasing an employee’s take-home pay.

The changes outlined here are not absolutely necessary for the operation of your payroll system. If you never expect to be effected by claims for EIC, then you may ignore these changes entirely. Even if your company does not have anyone claiming EIC at this point, it may still be a good idea to make these changes so the system is configured properly should someone start in the middle of the year. Companies choosing to NOT make these updates should simply use the old filing status codes of E and B when an employee claims EIC. Use the E code whenever the M would be used. (E and M are almost identical anyway.)

In OSAS the place to claim EIC for an employee is found under File Maintenance > Employees on the Tax Information screen on the line for the Federal Income Tax information. On this line is a field for the EIC Code. In the past the available settings were: N for not claiming (default setting), E if the employee was single or married without the spouse filing for EIC, or B if both the employee and spouse were claiming EIC.

Under the new regulations, the available codes will be:

N for not claiming (default)

E if employee is single or head of household

B if both the employee and spouse are claiming EIC

M if married without the spouse claiming EIC

The M code is the new status. This new claim status is very close to claiming the E status. In fact, with up to $13,520 in annual income M and E are identical in effect. Over $13,520 the M status will receive slightly more credit than the E status (approx. $100/year).

To configure OSAS to use the new status, three things need to be done:

1. Setup new EIC table

2. Edit the PFED_EIC.RTN formula

3. Edit the PAACEMP3 program

NOTE: If your system was installed after January 2002, and your EIC table already has the 6 columns in the table, then all you need to do is update the EIC table with the current table update. You do not need to edit the formula or make the program change.

These changes only need to be done in one company. The tax tables and program files are shared among all companies.

New EIC Table

Use Payroll > File Maintenance > Tax Tables to call up the old EIC table by entering the table ID of EIC. (You should be in the current year in payroll before you make these changes.)

If you have the old 4 column table, then use the F3 key to delete the table (the new table of the same name needs 6 columns instead of 4 in the old table). If you already have the 6 column table, then simply edit the data as shown in the table below.

Enter the table ID of EIC again. The table is now a new table. Skip the copy from prompt, and enter the table information just as you see below:

Note: On the third line that starts with the description Single, you will use the <spacebar> to position each of the appropriate descriptions above the corresponding column.

*---------------------------------- PATX -------------------------------------*

| Table ID EIC Description Earned Income Credit |

| Number of Cols 6 Column Length 12 Type 3 |

|Single % or Amount Married W/O % or Amount Married With % or Amount|

|------------ ------------ ------------ ------------ ------------ ------------|

| .000 20.400 .000 20.400 .000 20.400|

| 7490.000 1528.000 7490.000 1528.000 3745.000 764.000|

| 13730.000 9.588 14730.000 9.588 7365.000 9.588|

| 9999999.999 .000 9999999.999 .000 9999999.999 .000|

| .000 .000 .000 .000 .000 .000|

| |

*- Company H -------------- Quick ----------------------------------- Verify -*

When the table looks correct, use the <PgDn> to save the new table.

Edit the PFED_EIC.RTN Formula

Use Payroll > File Maintenance > Formula Maintenance to adjust the formula for EIC. Enter the formula name of PFED_EIC.RTN to call up this formula or use the F2 inquiry function to call up the formula.

We will not be changing the description or any of the 6 factors at the top, so <PgDn> to proceed to the lines of the formula. The cursor will go to the first line of the 17 formula lines. We need to change only one line, line 2. Use the arrow key to move to line 2 (LI002) and press <enter> to edit the line.

Each formula line can extend over two lines within the edit box. Edit line 1 to be:

Line 1 IF(EICCODE$="E")TH(0)EL IF(EICCODE$="M")TH(2)EL(4)

Line 2

Note: The only space in the line is between the EL<space>IF in the middle of the line. The TH(0) has a number zero within the ().

Leave the line 2 in the edit box blank. When you get back to the display of all the formula lines. Check your new line LI002. When it is correct, you may use the F7 to exit the program. As the program exits back to the menu, it will automatically create the new formula based on your change.

Edit the PAACEMP3 Program

One minor program change needs to be made so the program will allow you to enter the new code M in the EIC code field for an employee.

Go to Payroll > Daily Work > Payroll Transactions.

At the prompt for the Employee ID, we want to breakout of the program. To breakout, use the CTRL-C, followed by CTRL-A combination. These two combinations must be pressed immediately in sequence. They are both created by holding the CTRL key down (like a shift key is held down) then press the C followed by A. You should breakout to a READY > prompt. (If you have an older system, you may need to use CTRL-BREAK followed by CTRL-A)

After you breakout, press the <enter> key. If you see an error message, you may ignore it.

At the > enter: LOAD “PAACEMP3”

This will load the program file used during the setup of the federal tax information. You should see a READY prompt.

Enter: EDIT 3275

This will bring up a box with the program code for line 3275. Toward the middle of this line you will see a segment that has: ,X1$=”NEB”,

Arrow over to this segment and position the cursor between the E and the B. Enter the letter M. The segment should now have: ,X1$=”NEMB”, (If the letter M replaces the letter B instead of inserting in place, then press a CTRL-T which will toggle the insert mode and enter the letter B after the M.)

Press the <enter> key to accept your change. The box will disappear, and you should be on the line right below the word edit. If all has gone smoothly, on this line, enter the word: SAVE

The program will echo back: PAACEMP3

To get back to the menu, on a new line enter: RUN O1$ (that’s the letter O, digit 1, $) press <enter>

This will return you to the menu. If you have any problem, on any line you can enter BYE and that will get you out of OSAS. You may come back in and try again. Do not use the SAVE command above unless everything has gone smoothly.

Your system should now allow for the new filing status for EIC.