Help With Taxes For Low Income - The new version of Who Pays? It helps reveal that many states traditionally considered "low-tax states" actually pay high taxes to their poorest residents. The "low tax" label is usually assigned to states that pay no personal income tax or collect relatively small amounts of revenue overall. But by focusing on these measures, lawmakers may overlook the fact that state tax systems affect different taxpayers in different ways, and that low-income taxpayers are far from viewing these states as "low-tax."
For example, Texas appears to be a low-tax state. It has no personal income tax, no corporate tax, no property tax, and ranks 43rd in state and local tax collection as a percentage of personal income. In fact, Texas has low taxes for the rich Only eight states tax their wealthiest residents at lower rates than Texas, where the top 1 percent of earners pay just 3.1 percent of their income in state and local taxes, according to the analysis.
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But at the bottom of the income distribution, Texas' "low-tax" reputation couldn't be further from the truth
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The poorest 20 percent of Texans spend 13 percent of their income on state and local taxes — including sales tax, excise tax and property tax.
That tax rate is high enough to earn Texas the dubious distinction of having the sixth-highest effective tax rate for low-income earners, tied with Arizona. Texas' decision to eschew income and property taxes in favor of higher sales and property tax rates effectively affected the government's responsibility to fund the state.
Unfortunately, however, Texas is not alone. Florida and Washington, which both lack personal income taxes that are in the bottom half overall, are also among the states with the highest taxes on the poor. Arizona, Indiana, and Oklahoma have relatively low personal income taxes and low overall tax collections, but their tax rates on the poor are also among the highest in the country. A summary detailing the results of these states is available here The Earned Income Tax Credit (EITC) increases the income of low-income workers and offsets some of the taxes they pay, giving low-income families a chance to make ends meet. Financial Protection The federal EITC has lifted millions of Americans out of poverty since it was enacted in the mid-1970s. Over the past few decades, the EITC has grown in effectiveness as many states have enacted and expanded their own credits.
The EITC benefits low-income people of all races and ethnicities. It particularly benefits historically marginalized black and Hispanic communities, where labor market discrimination, unequal education systems, and countless other inequities put people disproportionately in low-wage jobs.
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The effects of the EITC have been studied for decades, and research consistently shows that children whose families receive the credit are more likely to graduate high school, attend college, and be employed as adults.
In addition to increasing the financial security of working families with children, the EITC also improves health outcomes and is associated with a reduction in the number of low birth weight infants.
As our nation continues to face economic uncertainty, proven and effective income support like the EITC is more important than ever. Even during periods of economic growth, many workers face low and slowly rising wages while struggling to pay for food, housing, childcare and other basic household expenses. Moreover, in 46 states, low-income households pay a higher share of their income in state and local taxes than wealthier households.
This leaves earning households with fewer resources and contributes to ever-increasing income and wealth inequality. Creating or expanding a state EITC can bridge this disparity in most state tax laws
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The federal EITC has boosted the incomes of low-wage workers since 1975. Lawmakers have improved credit over time so more working families can put food on the table, pay bills, and be in a better position for economic stability.
Last year, the American Savings Plan Act temporarily raised the federal EITC for low-wage workers without children at home and made it more accessible by expanding age and income limits. Those major expansions expire on January 1, 2022, although some members of Congress want to see those improvements revived.
The federal EITC paid out nearly $60 billion in 2021 to 25 million working families and individuals through their 2020 tax returns.
The EITC, often used as a temporary aid source, helps millions of families each year.
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The EITC is based on income such as wages and salaries. For example, for every dollar earned up to $15,410 in 2022, families with three or more children will receive a tax credit equal to 45 percent of income, up to a maximum of $6,935. Since the purpose of the loan is to increase the income of low- and middle-income workers, income limits limit eligibility for the loan. Households are eligible for the maximum loan until the income of a single household head reaches $20,140. Above this level, the cost of the loan gradually decreases to zero, and it is no longer available if the household's income exceeds the maximum eligibility level. Single-parent families with three or more children earning at least $53,070 a year are ineligible, as are married couples earning $59,200 or more. Absent federal action to revive recent improvements to the EITC, the credit will be much less generous and available to fewer workers without children at home: the maximum credit for such workers is $560, about a third of that population. Development results for 2021
In addition to helping working families pay for child care, health care, housing, food, and other necessities, state EITCs also help improve the fairness of state and local tax systems. Compared to federal taxes, state and local taxes are regressive, meaning that low- and middle-income households pay a larger share of their income than wealthier taxpayers. The poorest 20 percent of Americans pay 11.4 percent of their income in state and local taxes. In contrast, middle-income earners pay 9.9 percent and the richest 1 percent pay 7.4 percent in state and local taxes.
The heavy use of regressive sales and property taxes (which all working families pay) causes high state and local tax rates for poor families. The refundable state EITC is one of the most effective and targeted tax reduction strategies to reverse a regressive tax and is one of several policy options that states are using to make their tax systems more progressive.
Refunds are an important part of the state EITC because they ensure that workers and their families get the full benefit of the credit. The refundable credit does not depend on the amount of income tax paid; Instead, if the credit exceeds the income tax liability, the taxpayer receives the excess amount as a refund. As such, the refundable credit offsets regressive sales and property taxes on consumers and can provide much-needed income growth to help families meet basic needs. This is important because for low-income families, sales and property taxes—not income taxes—make up the bulk of state and local taxes.
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To date, about two-thirds of states (31 states plus Colombia and Puerto Rico) offer the EITC based on the federal credit (see Appendix). With a few exceptions (California, Minnesota, and Washington), most taxpayers count their state EITC as a percentage of the federal credit. This method of combining the state credit with the federal amount makes it easier for taxpayers to claim the credit (since the federal credit amount has already been calculated) and simpler for state tax authorities. However, benefits for workers without children at home, Individual Taxpayer Identification Numbers (ITINs) and immigrants filing for very low-income families are improving. There are also aspects of the federal loan that help you double down
States vary dramatically in the generosity of their credits. The District of Columbia's EITC, for example, is 70 percent of this year's federal credit for most eligible families, rising to 100 percent of the federal amount by tax year 2026 (for homeworkers, it's 100 percent of their credit ). D.C. A portion of the EITC will be available to beneficiaries in monthly payments
Meanwhile, six states (Delaware, Louisiana, Michigan, Montana, Oklahoma, and Oregon) have refundable loans that are less than 10 percent of the federal loan. Four states (Missouri, Ohio, South Carolina, and Utah) allow only nonrefundable credits, limiting the credit's ability to offset regressive state and local taxes.
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