Tax Credits for Working Families

To augment low wages, state governments have increasingly used tax credits to help families escape poverty and put them on a path to prosperity. Tax credits available to low- and moderate-income families, such as the Earned Income Tax Credit (EITC), reduce the regressive tax burden on the working poor, put more money in their pockets, and make saving for the future possible. The federal credit, and some state credits, are refundable, meaning that if the EITC is greater than the amount of taxes owed, the taxpayer receives a refund—sometimes up to $6,044. In 2009, the federal credit lifted more than 6.6 million Americans out of income poverty, including 3.3 million children. States have created their own versions of the EITC based on the structure and eligibility criteria of the federal credit. The amount of the state credit should be at least 15% of the federal credit. Ideally, state credits should also be fully refundable so that all low-income families, even those without a tax liability, can benefit from the credit.



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