The Earned Income Credit (or EIC) is a tax credit that’s available to low-income Americans. As it’s a credit and not a deduction, filing for it often results in people getting a refund, and a large refund at that.
It’s been called the biggest cash-assistance program in the country. And you don’t have to be on welfare to get it.
But before you get outraged about this credit that you work so hard and pay taxes to supply, consider this:
- The people receiving the EIC (or EITC) are working and paying taxes, too. The amount you get refunded is proportionate to the amount you make. It drops off after reaching a certain income, like a bell curve.
- It’s been argued and proven through research that it actually encourages work rather than collecting welfare.
- It’s also been argued that it’s a minimum wage subsidy. It’s no secret that big companies own our government. This tax credit has been issued and renewed by Republicans and Democrats alike over the years. (Think Reagan and Clinton just to name a couple.)
Instead of raising minimum wage, the government compensates people who live on wages that can’t even accumulate to higher than the poverty line at full-time by giving them back a chunk of money every April. Companies don’t have to pay their workers as much as a result.
The biggest beneficiaries from this credit are not the low-income recipients, but the mega corporations that aren’t required to pay their workers a living wage.
The minimum wage vs. the cost of living is so disproportionate right now that many states have proposed to raise it to a rate where anyone working a full-time job would make enough to be above the poverty-line.
Would this be better or worse for low-income workers? Would it disqualify them from receiving the EIC? Would the raise compensate for the refund lost? It would all depend on how much you’re making and how the tax law changes impact you over the next couple of years.
Want to claim this credit, but don’t know how? Or think you won’t qualify? You’d be surprised. Get free help with your taxes from the VITA program. Or, if you prefer filing online, check out MyFreeTaxes, which is free even for middle-income earners and small business owners.
For example, if you’re one of those imaginary people popping out babies to get the most out of the system, you know that right now you max out your EIC “earning” opportunities with three children. I wouldn’t have a baby this year simply for tax purposes. Because next season you’ll max out at two.
UPDATE: Since the writing of this post, legislation passed that extended the 3 child limit.
Low-Income Households Aren’t the Biggest EIC Beneficiary
But proportionately there are so few people who work the system as opposed to people who are in the system because they’re really trying to make life work.
The biggest problem in our government spending isn’t the poor. The bigger problem is the rich who would impose subsidies on everything from sugar cane to the everglades to the minimum wage so that they can make even more money.
And that’s on both sides of the aisle.
Have a little sympathy for those celebrating a brief relief from their struggles this spring.
Featured on JLCOLLINSNH: VITA, income taxes and the IRS