Budget deal is good for low-income working families

Congress has agreed on a budget deal that looks likely to pass later this week. Included are extensions to the child tax credit and Earned Income Tax Credit (EITC).

Here’s how the budget deal affects low-income families:

• The child tax credit provides a credit of $1,000 per qualifying child to tax filers up to a maximum income level. But it is not refundable, meaning low-income families who owe no income taxes do not receive it. But the additional child tax credit (created as part of the 2001 Bush Tax Plan) offers a refundable credit to households that don’t owe income taxes.

Republican Senate leaders Tom Barrasso (R-WY), John Thune (R-SD), Senate Majority Leader Mitch McConnell (R-KY) and John Cornyn (R-TX) hold a news conference on budget negotiations on Capitol Hill in Washington December 15, 2015. REUTERS/Gary Cameron.

Prior to the 2009 ARRA, tax filing units with income of $10,000 or more could receive 15% of their income above this level as a refundable credit –  up to $1,000 per child. ARRA and subsequent tax bills in 2010 and 2012 reduced this amount to $3,000, which provides refundable credits to more low-income families. But these provisions are set to expire in December 2017. The budget deal makes them permanent.

If the extensions were left to expire, a working family with two children earning $16,000 per year would receive roughly $1,500 less from the additional child tax credit in 2018.

• The EITC was made larger for families with three or more children and income eligibility was increased for married families as part of the ARRA in 2009 and the subsequent tax bills. But, similar to the additional child tax credit, these provisions were set to expire in December 2017. The budget deal also extends these provisions permanently.

If the EITC provisions expire, many low-income families face reductions in their EITC starting in 2018 and married families would be impacted more than single-parent families. Combining the implications of the EITC and the child tax credit, many low-income families face significant reductions in tax credits starting in 2018.

The child tax credit and EITC help working families pay for child care, transportation, and other work expenses, and lifted roughly 5.2 million children out of poverty in 2014. If this budget deal passes, it will continue a long history of bipartisan support for legislation that helps low-income families.

from AEI » Latest Content http://ift.tt/1P8ph5U