Refundable tax credit for low-to-middle class individuals in the U.S.
EITC
The United States federal earned income tax credit or earned income credit (EITC or EIC) is a refundable tax credit for low- to moderate-income working individuals and couples, particularly those with children. The amount of EITC benefit depends on a recipient's income and number of children. Low-income adults with no children are eligible.[1] For a person or couple to claim one or more persons as their qualifying child, requirements such as relationship, age, and shared residency must be met.[2][3]
EITC phases in slowly, has a medium-length plateau, and phases out more slowly than it was phased in. Since the credit phases out at 21% (more than one qualifying child) or 16% (one qualifying child), it is always preferable to have one more dollar of actual salary or wages considering the EITC alone. However, investment income is handled far less gracefully, as one more dollar of income can result in a sudden and complete loss of the credit. If the EITC is combined with multiple other means-tested programs such as Medicaid or Temporary Assistance for Needy Families, it is possible that the marginal tax rate approaches or exceeds 100% in rare circumstances depending on the state of residence; conversely, under certain circumstances, net income can rise faster than the increase in wages because the EITC phases in.[4]
The earned income tax credit has been part of political debates in the United States over whether raising the minimum wage or increasing EITC is a better idea.[5][6][7] In a random survey of 568 members of the American Economic Association in 2011, roughly 60% of economists agreed (31.7%) or agreed with provisos (30.8%) that the earned income tax credit program should be expanded.[8]
In 2021 when the survey was done again, the percentage of economists that agreed to expanding the credit increased to 90% https://www.aeaweb.org/conference/2022/preliminary/paper/HBhGyFD7
^Cite error: The named reference IRSEITC2021 was invoked but never defined (see the help page).
^EITC IRS instructions Internal Revenue Service, "EITC Home Page--It’s easier than ever to find out if you qualify for EITC"
^Tax Year 2020 1040 and 1040-SR Instructions, including the instructions for Schedules 1 through 3, Rules for EIC begin on page 40 for 2020 Tax Year.
^Maag, Elaine; Steuerle, C. Eugene; Chakravarti, Ritadhi; Quakenbush, Caleb (December 2012). "How Marginal Tax Rates Affect Families at Various Levels of Poverty". National Tax Journal. 65 (4). National Tax Association: 759–782. doi:10.17310/ntj.2012.4.02. ISSN 0028-0283.
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reliance on progressive incometaxes rather than sales taxes for revenue or tax rebates such as the earnedincometaxcredit loosely correlate with socio-economic...
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children a taxpayer has and sometimes the taxpayer's income level. For example, with the Child TaxCredit in the United States, only families making less than...
in order to receive a refund on withheld income or to receive certain credits (e.g. earnedincometaxcredit).: 6 The form may be filed either by paper...
disposable income, tax cuts are an example of an expansionary fiscal policy. Tax cuts also include reduction in tax in other ways, such as taxcredit, deductions...
the country get tax refunds even if they owe zero incometax. This is due to withholding calculations and the earnedincometaxcredit. Because withholding...
are taxed on dividends distributed by the corporation. Corporations may be subject to foreign incometaxes, and may be granted a foreign taxcredit for...
methodology, with its emphasis on EarnedIncomeTaxCredit (EITC) claimants, resulted in a higher audit rate of low-income African-Americans in U.S. counties...
California outreach program that helps low-income families claim the state and federal earnedincometaxcredits. Born and raised in Southern California...
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