According to the Internal Revenue Service, the Earned Income Tax Credit (EITC) is a subsidy provided to moderate to low-income families to help offset the expensive costs of raising a child. The amount of money you can receive from the tax credit depends on a variety of conditions, including the number of dependents you have and how much money you made during the tax year. The credit has been the subject for debate among politicians since its inception with a new proposal to expand the benefit.
In March 2014, President Obama unveiled a new budget for 2015, which included an expansion of credits that would affect around 13.5 million low-income workers. Under this new plan, close to eight million workers would be eligible for a higher earned income tax credit and approximately an additional six million would qualify. The credit would help push more than 500 million people's incomes above the poverty line, and young adults would become eligible to receive the credit. In addition, the expansion would include workers aged 65 to 67, who currently do not qualify.
According to the Center on Budget and Policy Priorities, the EITC provides a wealth of benefits to working families, including health and education benefits. Studies have shown that children in families who receive the credit do better in school and are more likely to attend college. They are also more likely to earn more money as adults, and the children are less likely to develop a disability or childhood illness that is associated with poverty. The earned income tax credit helps to increase employment and earnings of women, and it also helps to provide a short-term safety net for low-income families who receive the credit.
Along with the federal credit, states have the ability to adopt or expand their own earned income tax credit. Nearly half of all states in the US have an earned income credit. Like the federal earned income credit, the state tax credit provides extensive benefits to parents, children, communities, and families. It helps working families make ends meet, helps to keep families working instead of relying on unemployment, reduces poverty, and can have a lasting effect on the overall lives of the children receiving the benefit. In spite of the benefits the earned income credit provides, many states have pulled back on the credit due to the ongoing recession.
With the apparent benefits the earned income tax credit provides, the subsidy will continue to expand and grow. The benefits are immeasurable, which leaves politicians questioning whether to increase the credit to provide further assistance to moderate and low-income families. Even states without an earned income tax credit could benefit from an earned income credit, because families with children tend to spend a higher share of their income on taxes than families with more money.
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