Refundable Tax Credits

Income and work supports may be provided through the tax system as well as through benefit programs. The most important tax credits for low-income households are the refundable Earned Income Tax Credit and the Child Tax Credit (credits that together lifted an estimated 8.7 million people out of poverty in 2011), and the partially refundable American Opportunity Tax Credit, which reduces the cost of postsecondary education.  These credits were improved by the 2009 American Recovery and Reinvestment Act, and these improvements were extended through 2018 by the American Taxpayer Relief Act of 2012. 

Jan 27, 2017  |  PERMALINK »

EITC Awareness Day: 10 Reasons to Love the EITC

By Jessica Gehr

Today is EITC Awareness Day, a day to emphasize the importance of the earned income tax credit (EITC) and other refundable credits to ensure millions of workers are not taxed into poverty. Here are the top ten reasons to love the EITC.

1. The EITC is a highly effective anti-poverty tool. Without refundable tax credits, an additional 9.2 million people would have fallen into poverty in 2015.

2. The EITC supports and rewards work. Many studies have proven that working-family tax credits encourage work. The EITC is especially effective at encouraging work among single mothers earning low wages.

3. The EITC helps families afford necessary expenses. Many families spend their tax refund on necessary expenses such as bills, groceries, car repairs, child care, and school supplies.

4. The EITC reduces evictions. Many workers use their refund to make a housing payment. In his book, Evicted, Matthew Desmond found that evictions decline in February because many families dedicate some or all of their EITC to pay back rent.

5. The EITC benefits the local economy. The EITC benefits not only low-income families but also the communities in which they live. Many families spend their EITC at local businesses, spurring economic growth and jobs.

6. The EITC is pro-family. The EITC encourages responsibility and primarily benefits families with children. In 2009, Congress passed legislation (since made permanent) to reduce the “marriage penalty” experienced by many families.

7. The EITC can be advanced at the state and federal levels. States can supplement the federal credit with a state EITC. A mix of 26 red and blue states and the District of Columbia have created state EITCs that build on the benefits of the federal credit. 

8. The EITC improves long-term outcomes for recipients’ children. Studies have proven that the EITC and other working-family tax credits improve child achievement and long-term educational attainment, increase earnings in the next generation, and lead to positive health outcomes.

9. The EITC has bipartisan support. The EITC has long enjoyed support from both Democrats and Republicans because it fights poverty as well as encourages and rewards the work of low- and moderate-income people. 

10. The EITC can, and should, be expanded to reach more workers not raising children. Right now, individuals without kids have limited access to the EITC; consequently, they’re being taxed into poverty. Both Democrats and Republicans have supported proposed changes to the EITC for workers without dependent children, including phasing the credit in faster, raising the maximum credit, and lowering the eligibility age. Expanding the EITC would benefit 13.5 million workers, including young workers, older workers, noncustodial parents, and veterans. 

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