Earned Income Tax Credit |
By Jonathan Boral on January 21, 2010
The federally funded Earned Income Tax Credit (EITC) is a refundable tax credit, aimed at supporting lower and middle class American families. Typically, a household with one qualifying child can receive a maximum credit of approximately $3,043, while any household with two qualifying children can receive a credit of up to $5,028.1
While there are many factors to determining if a child is qualified, generally they consist of children under the age of 18, or under the age of 24 if enrolled in at least a semester of school. Also, foster and adopted children may be approved, as long as they are either in the same generation or a later generation than that of the claimant.
The main purpose of the EITC is to give individuals more incentive for working longer hours. The use of a phase in and phase out program makes working more hours more profitable, but also stops many from over-extending the use of the tax credit.
During the phase in program, for each additional hour worked, a greater percentage of that income will receive the tax credit. Income will reach a plateau at which every dollar received from working extra hours past this point will decrease the amount of income that is capable of receiving a tax credit, as well as decreasing the rate at which the credit is received.
EITC has also been accredited as the largest poverty reduction program in the United States. As it pushes for many workers, especially those working for minimum wage, to work more hours, it keeps large amounts of low class households out of poverty.
Not only does it keep households from falling below the poverty line, it also has strengthened the American economy. The money received from working longer hours, along with the tax credits, is generally pushed back into American businesses.
The most important step currently regarding the EITC is creating knowledge about it to more households. Annually, many tax credits go unclaimed because households either do not know that they qualify for the tax credit, or they do not feel it is worth the time it takes to fill out the tax form.
1 Figures for 2009 Tax Year. Beginning in 2009, the EITC increased for workers with a third qualifying child, up to a maximum of $5,657. See IRS Publication 596 for EITC updates. |
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