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Refundable Tax Credits

The tax code is one of the most effective ways to address the economic needs of low-income families and individuals. NETWORK believes that a just tax system includes refundable credits for low-income workers and their families. These tax credits can provide essential income assistance to working families and are a proven mechanism to alleviate poverty.

As part of a larger deficit debate, these credits and their expansions under The American Recovery and Reinvestment Act of 2009 (ARRA) are being considered in Congress. In preventing a disaster from the fiscal cliff, at the end of 2012, Congress extended the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC), with their ARRA improvements, for five years. However, at the same time, 98% of the 2001 and 2003 tax expenditures for the wealthiest among us were permanently extended. NETWORK supports the expansion of both the EITC and the CTC and believes that both of these should be permanently extended.

Earned Income Tax Credit (EITC)

The EITC was enacted as a way to help low-income families hold on to more of their earnings. It is designed to encourage and reward work. Starting with the first dollar of earned income, a worker’s credit grows with each additional dollar of wages until that worker reaches the maximum credit. Since it started, EITC has become one of the best tools the federal government can use to fight poverty. Prior to 2009, families with three or more children received the same EITC benefits as those with two children. In ARRA (the economic stimulus legislation passed in 2009), a third tier was created for families with three or more children (over three million families in 2009).

What would happen if we lost the third tier?

Over three million people now benefitting from the expanded EITC would see their credit reduced by more than $600. A married couple with three children making $30,000/yr currently receives approximately $3,705 in EITC benefits. If the third tier were eliminated they would only receive $3,061.

Child Tax Credit (CTC)

The CTC was designed to help offset the cost of children. The credit is partially refundable and is generally worth $1,000 per child. For working families with too little income to owe the federal income tax, the credit is equal to 15% of the amount of earnings a family makes above the refundability threshold (up to $1,000 per child). This threshold at which a family’s earnings are counted has changed since the CTC was first enacted, and makes a big difference in the amount of earnings a working family is able to keep. In ARRA, the threshold was reduced from around $12,000 in earnings to $3,000.