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.
Mar 6, 2014 | PERMALINK »
President Proposes Expanding and Strengthening EITC To Youth and Childless Adults
By Helly Lee
On Tuesday, President Obama released his FY 2015 budget, which includes a proposal to expand and strengthen the Earned Income Tax Credit (EITC) for low-income childless workers, including non-custodial parents.
EITC is one of the country’s most important anti-poverty programs. In 2012, it benefited over 27 million Americans, lifting 6.6 million people (including 3.3 million children) out of poverty. The program has long been known to encourage work among low-income people because one must be employed to be eligible for the credit. However, individuals without dependent children are only eligible for a very small credit—a maximum of about $500—and begin to lose the benefit even before their earnings reach the poverty threshold.
In his budget, President Obama proposes doubling the maximum credit for childless workers to about $1,000 and increasing the income limit to qualify for the credit from less than $15,000 to $18,000. In addition, the President proposes to make the EITC available for young workers age 21 and over and older workers up to age 67, consistent with the rising Social Security full retirement age. The current age limits are 25 to 65. The proposed changes would have a significant impact on low-income workers who do not currently have access to the EITC.
Young adults, especially those with limited education and skills, continue to face employment challenges in our still recovering economy. They disproportionately work in low-wage jobs without a career path and are among the millions of the working poor. This proposal is significant because those newly eligible would include 3.3 million working young adults ages 21 to 24. Full-time students who can be claimed as tax dependents would not qualify for the EITC.
Research has shown the lasting benefits of the EITC, notably that it promotes work and raises the income of low-wage workers. This proposal to expand and strengthen the program is critical to helping low-wage workers address major financial challenges.
The President’s budget also proposes to make the 2009 American Recovery and Reinvestment Act (ARRA) improvements to the EITC and the Child Tax Credit (CTC) permanent. ARRA expanded the EITC for families with three or more children. These larger families can now receive up to $672 more than they would have without this change. It also expanded marriage penalty relief in the EITC, allowing married couples to receive larger benefits at modestly higher income levels. These two improvements lifted an estimated 600,000 out of poverty and reduced the severity of poverty for approximately 10 million people in 2012. Under ARRA, the CTC was also expanded, reaching more low income working families and increasing the credit amount for current recipients. This change lifted 900,000 people out of poverty in 2012. These improvements to both the EITC and CTC are set to expire in 2017 unless Congress makes them permanent.
The EITC has long received bipartisan support because it is recognized as a program that successfully encourages and rewards work. As debates around tax reform continue, CLASP will remain steadfast in our support for strengthening these critical tax credits for low-income families.
- Elizabeth Lower-Basch | Aug 07, 2013 Poverty Trends: Declining Wages Require Growing Income Supports
- Elizabeth Lower-Basch and Julie Strawn | Apr 15, 2013 Comments on Education and Family Tax Benefits
- Helly Lee | Feb 04, 2013 Research Shows Long-Lasting Benefits of EITC
- Patrick Reimherr, Elizabeth Lower-Basch, and Julie Strawn | Jan 28, 2013 No Cliff for Tax-Based Student Aid
- Lavanya Mohan | Jan 24, 2013 National EITC Awareness Day: Spread the Word
- The Reimagining Aid Design and Delivery (RADD) Consortium for Higher Education Tax Reform | Nov 21, 2013 Higher Education Tax Reform: A Shared Agenda for Increasing College Affordability, Access, and Success
- CLASP | Sep 18, 2013 Child Poverty in the U.S.: What New Census Data Tell Us About Our Youngest Children
- Jul 31, 2013 CLASP Work Supports Newsletter - July 2013
- Elizabeth Lower-Basch | Jul 31, 2013 Poverty Trends: Declining Wages Require Growing Income Supports
- Jul 01, 2013 CLASP Work Supports Newsletter - June 2013