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FAQ

What is the earned income tax credit?
What is earned income tax credit The Earned Income Tax Credit EITC is abenefit for working people with low to moderate income. To qualify you mustmeet certain requirements and file a tax return even if you do not owe anytax or are not required to file. EITC reduces the amount of tax you owe andmay give you a refund. To qualify for EITC you must have earned income from working for someone orfrom running or owning a business or farm and meet basic rules. You musteither meet rules for workers without a qualifying child or have a child thatmeets all the qualifying child rules. Qualification for EITC depends on filing status number of children andincome. 2021 amounts shown here Single Head of Household or Widowed of ChildrenIncome Limit 014590 138511 243756 3 or more 46997 Married Filing Jointly of ChildrenIncome Limit 020020 143941 249186 3 or more52247 Income limits apply to both earned income and adjusted gross income. Investment income must be no more than 3350 for the year. The maximum amount of credit for Tax Year 2021 is 6143 with three or more qualifying children 5460 with two qualifying children 3305 with one qualifying child 496 with no qualifying children Qualifying Child Rules Your child must have a Social Security Number that is valid for employment andmust pass all of the following tests to be your qualifying child for EITC Relationship Your son daughter adopted child stepchild foster child or a descendent of any of them such as your grandchild Brother sister half brother half sister step brother step sister or a descendant of any of them such as a niece or nephewAge At the end of the filing year your child was younger than you or your spouse if you file a joint return and younger than 19 At the end of the filing year your child was younger than you or your spouse if you file a joint return younger than 24 and a fulltime student At the end of the filing year your child was any age and permanently and totally disabledResidency Child must live with you or your spouse if you file a joint return in the United States for more than half of the yearJoint Return The child cannot file a joint return for the tax year unless the child and the childs spouse did not have a separate filing requirement and filed the joint return only to claim a refund.
Is the Earned Income Tax Credit in effect a subsidy to business?
EDIT I finally got a decent answer to the question from economics writer BenCasselman the advantage of the EITC is that it targets the money just to lowincome households. A significant number of lowwage earners are in themiddleclass kids with summer jobs category. httpfivethirtyeight.comdatal... That doesnt alter the fact that its still a subsidy to employers who get topay teenagers and grownups the same minimum wage without having to make it aliving wage for either category. The teenagers earn less money for the samework a unique form of means testing for the laboring class. The EITC is a point of contention among conservatives. Some feel that its yetanother government thumb on the scales. Ever the contributor to nuance andinsight Ron Pauls fans dub The Earned Income Tax Credit Government THEFT. On the other hand Milton Friedman approved of it as being relatively free ofgovernment interference. I honestly have zero conception of why he would saysuch a thing though it appears to have something to do with the fact that itwas a more work more money approach. Greg Mankiw points out that the EITC is aimed at children rather than at merelaborers. Again Im not sure why he would say such a thing the EITC isadjusted for more children though it seems more of a subsidy for families andas such yet another bit of government interference. Honestly in the end Id have to say its because tax credits starve thebeast as if that actually made any sense. Yes its a subsidy for businesseswho get to have laborers work for sums closer to the subsistence line withouthaving them actually starve. The way EITC is designed it appears to supportconservative social goals in a way that minimum wage doesnt but both areequally government manipulation of the labor market and the EITC puts more ofthe burden on the tax filer and away from the business.
Why can't I get an earned income tax credit if my spouse doesn't have a socialsecurity number?
As Wray suggests the EITC law was written to require SSNs for all partiesprecisely to reduce the possibility of fraud. I want to focus on the other part of Wrays answer to reemphasize that yourspouse needs to have a tax ID number an ITIN if she does not qualify for anSSN. Since she qualifies as a resident alien under the substantial presencetest she has all of the obligations of a US citizen under the tax laws. Whileyou still cant claim the EITC you can at least file a joint return with thehigher standard deduction and perhaps be eligible for other benefits notavailable to you as MFS.
Does minimum wage as a tool for combating poverty have any advantages overearned income tax credit?
Neither is a particularly effective tool against poverty because the majorityof poverty in a developed nation is temporal. The primary causes of povertyfor a household are A sudden decrease in income A sudden increase in expenses A minimum wage and a tax credit do nothing to address these problems. In factminimum wage increases have been directly attributed to job loss and lack ofopportunity for the lowest paid unskilled employees. Honestly no government program addresses the causes of poverty. They only makethe effects more bearable and in many cases prolong a households stay inpoverty. One could argue that its inhumane to let a poor family starve but it is selfinterest that compels a person to seek a better life. If all your basic needsare met by an EBT card and subsidized housing and the government will takethem away if you get a pay raise what incentive do you have to work harder orseek a better paying job
How would you rewrite the US tax code? What would the new tax brackets be?Would you keep the Earned Income Tax Credit or the Alternative Minimum Tax?Would you repeal the mortgage interest deduction or enact the Buffet rule?
I’ve been thinking about this one for a long time.I don’t think the income tax can be redeemed. It is impossible to make itwork.Here are three absolutes for a tax Revenue raising Fairness AdministrabilityThe problem with the income tax is that you can any two elements but youcannot have the third. Income tax is just too complex.I’m not talking about the personal income tax on employment income. That’spretty easy to measure most of the time. But as soon as you tax business orproperty income things like interest dividends rents royalties and capitalgains it gets complicated.Why Because you’re not just measuring the inflow you’re measuring netincome. That’s after deductions. Not just arbitrary deductions like mortgageinterest but a general class of expenses incurred to earn that income.Now layer on top of that complexity the fact that people can and often mustfor nontax reasons incorporate their businesses or run them through otherforms of organization in the United States partnerships and LLCs amongothers.That’s not enough Now you have to do it in an international environment. Whatdo you do about domestic companies earning foreign income What about foreigncompanies earning domestic income Ever hear of a Double Irish Sounds like agood drink or a sex position. It’s not. But if you’re particularly hungry itcomes with a Dutch Sandwich. Oh the income tax can raise money and it does. At least for a while. And itcan be made mostly fair. But this is what the US regulations look likeAnd of course in an international world there is something like this in theother countries as well. So every company has to pay expensive people lawyersand accountants like me to figure this stuff out forwards and backwards.And the governments have to do the same.Of course governments don’t pay their civil servants very well so theymostly don’t have the same expertise as the opposite side. They simply don’thave the skilled manpower to audit enough to find the errors and omissionswhether intentional or not.And that doesn’t even take into account the fact that Congress is slowlydefunding the IRS But I digress.Of course you could simplify things. Tax only domestic income not foreignincome. That would stop things like Tax inversions. But would it be fairThere’s a long list of simplifications that could be made but most of themwould open up loopholes. A huge part of tax legislation is nothing butloopholeclosing. Or you could dramatically lower tax rates. It doesn’t pay to use me if you’reonly going to save 12 in tax. Lower tax rates make tax strategiesinefficient.But that would lower the amount of revenue raised.Are you ready to halve Social Security Byebye Obamacare Trumpcarewhatever.The solutionDo what the Europeans do and Canada and New Zealand and lots of otherplaces institute a Valueadded tax “VAT”.But do it with an American twist kill the income tax.A VAT is a sales tax but it’s levied on just about everything properly doneeven food. It’s a sales tax not an income tax. That means your costs areirrelevant. That makes it much simpler a business just has to measure yourinput tax credits but that’s just the amount it paid in VAT on its purchases that’s easy.Because the base is so broad the rate can be much lower than the income taxrate to generate the same revenue.It is far simpler to run than an income tax. There are scores of examples thatprove this.ObjectionsMoving tax from corporations to individualsA major objection is that it removes tax from corporations and lays it allonto individuals. This appears at first blush to be a reasonable objection.But there is a great deal of evidence accepted by economists across thespectrum that corporate taxes don’t really fall on shareholders they fallprimarily on employees of the corporation and some on customers. Justbecause corporations write the check to the government doesn’t mean theyactually bear the cost.Tax incidence WikipediaProgressivityThe biggest objection is that a VAT is regressive. That’s easy to overcome pay out a subsidy to lowincome people. This is how every VAT is instituted.In a country with no income tax as I suggest the solution is to pay thesubsidy to everyone. Yes this appears expensive but for most people it’sjust money running around in a circle. You can set the rate appropriately todo this. And you can combine it with a Guaranteed Annual Income a darlingconcept of both the left and right.Is it as progressive as income tax No. There’s no tax that can replicate theincome tax’s progressivity because progressivity is specifically definednow as causing a higherincome person pay tax at a higher rate.The problem with this definition is the definition of “high income”. As notedabove “income” is a very difficult concept to measure consistentlyespecially at the highest levels. So we come up with some proxies for it.They’re still not very good.And when you apply very high tax rates hello France Canada California andNew York City you get economically inefficient behavior. People spend a lotof time trying to minimize their taxes instead of earning more income. Insteadof employing more factory workers they employ more accountants. Good for mebut not so good for the economy.Or they cheat. Or they leave the jurisdiction altogether. Do you think it’s acoincidence that so many American professional athletes live in Florida ratherthan New York Oh yeah‡ it’s just for the weather‡ yeah.Millionaire athletes flee states with high income taxesDoes anybody remember The Goose That Laid the Golden EggsTax on foreignersAnother objection is that a VAT imposes no tax on foreigners. Right now if aforeigner earns US investment income sheit has to pay US income tax. Thatrevenue would be lost.Actually no. Again for the same reason that corporations effectively bear notax neither do foreigners. Their aftertax rate of return for a given risklevel is fixed. The net effect here would be to increase foreign investmentin the United States creating jobs.How about a different definition of progressivityIn real life rich is what you spend not what you earn. Rich people spend alower proportion of what they earn. They give away the difference. Some goesto charities and some goes to family. But in either case when it gets spentit would generate VAT revenue.ConsistencyOne factor that people often miss in tax policy design is consistency. A goodtax will generate roughly the same governmental revenue in good years and bad.The reason this kind of a tax is beneficial is that it allows for futureplanning. Governments spend on shortterm stuff but they also make longtermcommitments. Predictable revenues make the political choices more transparent.Income taxes especially business taxes and tax from rich people bounce upand down quite a lot. When the economy’s good they gush. When the economy isbad those entrepreneurs generate losses.VAT revenues are much less affected by these fluctuations.If you’re a Keynsian and you want to use government to “prime the pump” youcan still do this but with spending again politically transparent ratherthan the tax system.TransparencyThe best thing for people about a VAT is that if governments want moremoney they have to raise the rate on everybody. Right now there’s a lot of“don’t tax me don’t tax thee tax that guy behind the tree”. Politically easytargets get tax hikes even if it makes little economic sense.A VAT is good for democracy. There’s no free money. Politicians can’t fool youby taxing one person but having another bear the cost.ConclusionA VAT beats an income tax hands down. Except for politicians who use incometax to fool people.
What does Bernie Sanders think of earned income tax credits?
I have not researched Bernie Sanders stance on this specifically but theEarned Income Credit is all that he represents and I would guess he is astrong supporter. The EIC is designed to help low income earners anddisqualifies those who make too much money or a material amount from othersources i.e. investments. It is the main driver of large refunds that lowincome taxpayers receive and is the epitome of income redistribution.A credit that benefits low income families I believe Sanders is probably asupporter. I would imagine his only concern is the limits put in place forthose in this category and the amount of money they get back. Im sure hewould like for those to be increased but is a supporter of such credit beingin the tax code.Take careSean Meyer Cloud Controller Inc.
Should illegal workers with children get Earned Income Tax Credit checks likecitizens who are single parents?
Q Does the IRS pay billions in tax refunds to workers who are in the U.S.illegally A Yes. The Treasury Department’s Inspector General determined that 4.2billion was paid in 2021 up from less than 1 billion in 2021. LeadingDemocrats are resisting a bill that would stop future payments. The Washington Post and others reported on this last year when the TreasuryDepartment’s inspector general for tax administration issued a report on July7 2021. The title of the report summed up the IG’s finding “Individuals Who Are NotAuthorized to Work in the United States Were Paid 4.2 Billion in RefundableCredits.” The credits currently amount to 1000 per child and they are “refundable”meaning that parents may receive refunds even when they do not owe any tax. The IG report stated that more than 2.3 million persons who did not haveSocial Security numbers valid for working in the U.S. got an average ofroughly 1800 each in 2021 in child tax credit refunds. That included 9000illegal immigrants who each got a total of 10000 or more by retroactivelyclaiming credits for tax years prior to 2021. Tax Credits for Illegal Immigrants The IRS knowingly allows illegal aliens who claim children to get EarnedIncome Tax Credit cash payments of up to 5891 per household. This is onereason why these cash payments are expected to exceed 52 billion in fiscalyear 2021 alone. The General Accountability Office GAO estimates thatroughly a quarter of all Earned Income Tax Credit payments are issuedimproperly. Compounding the problem is the Additional Child Tax Credit which was addedto the older Child Tax Credit program that became law in 1997. The Child TaxCredit reduces the tax lowincome families pay by 1000 for each child under17. If the tax filer claims five children for a credit of 5000 but owes only2021 in taxes under the Additional Child Tax Credit the IRS sends the filera check for the difference or 3000. The federal tax agency makes no effort to verify the existence of childrenor the eligibility of the taxcredit recipients to work in the United States.Indeed IRS managers reportedly encourage their staff to ignore questionableapplications and blatant fraud for the sake of fasttracking IndividualTaxpayer Identification Number approvals. A 2021 Treasury Department study found the IRS paid illegal immigrants 4.2billion in Additional Child Tax Credit refunds in 2021 representing nearlyonefifth of all ACTC refunds paid that year. Read more httpwww.washingtontimes.comn...
Politics of the United States of America: Is the earned income tax credit toolow for single filers without kids?
Looking at the existing Welfare structure in the USA including how the EITCand other aid is given based on family structure there is one inescapableconclusion The tax code hates single people and it despises those without kids. Theres really no other explanation for it. The levels at which aid ceases tobe given to childless singles or childless couples is so ridiculously tinycompared to those with children that it can be nothing other than punative. Your graphic is emblematic of the entire US Welfare system. Aid to thechildless stops well below what even the US government defines as the povertyline the line below which the US defines as not sufficient to support aminimal acceptible existence. And aid to those with children continues wellbeyond a point when they are considered middle class let alone just poor. The system is perverse in its design because it make financial sense in abig way for a person to have a child even if they are dirt poor and cantsupport themselves because even though theyll still be poor after having thechild the level of government subsidies now available is HUGE compared towhat they were eligible for before. So the answer to your question is YES the level of subsidies and cutoffpoints for the childless poor are WAY too low and in fact assure that MOREchildren will grow up poor.
How can I get an earned income tax credit?
If you qualify. It will depend if you meet the requirements for Earned IncomeCredit on your tax return. You may find additional information at EarnedIncome Tax Credit EITCYou may be able to take the credit if You have three or more qualifyingchildren and you earned less than 47955 53505 if married filing jointlyYou have two qualifying children and you earned less than 44648 50198 ifmarried filing jointly You have one qualifying child and you earned lessthan 39296 44846 if married filing jointly or You dont have aqualifying child and you earned less than 14880 20430 if married filingjointly.Your adjusted gross income also must be less than the amount in the above listthat applies to you. For details see Rules 1 and 15. Delayed refund ifclaiming EIC. Due to changes in the law the IRS cannot issue refunds beforeFebruary 15 2021 for returns that claim the EIC. This applies to the entirerefund not just the portion associated with the EIC. Investment income amountis more. The maximum amount of investment income you can have and still getthe credit has increased to 3400. See Rule 6.
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