Q: What is the Earned Income Tax Credit?
A: The Earned Income Tax Credit (EITC) is a refundable tax credit that greatly reduces or even eliminates the federal tax, including the payroll taxes, paid by lower income workers. It’s designed to help reduce poverty by giving substantial tax relief to low-income taxpayers. The EITC has helped millions of families keep more of their own pay. Almost 23 million American families received more than $42 billion in refunds through the EITC in 2005. Nearly 175,000 Iowans received almost $279 million dollars for an average of more than $1,600 per return in 2004. Unfortunately, there are still many taxpayers who are eligible but not taking advantage of the tax credit. The Government Accountability Office and Internal Revenue Service estimate that as many as 7 million households nationwide are entitled to the EITC but don’t claim it. To help reach these people and educate them about the provision, the Internal Revenue Service has designated January 31 as Earned Income Tax Credit Awareness Day. I hope this Q&A feature from my office also reaches Iowans who might benefit from the EITC. More detailed information about eligibility for this tax credit and the special IRS assistance that is offered to many EITC-eligible taxpayers is available at www.irs.gov/individuals.
Q: What’s your view on this tax policy?
A: I’m a strong supporter of the Earned Income Tax Credit because it rewards and encourages work. When I was Chairman of the Senate’s tax policy committee, I was able to expand the number of taxpayers eligible for the tax credit by increasing the income levels for married couples who file a joint tax return and by making it easier for military families to qualify for this tax relief. I also got legislation passed to simplify the EITC in order to make it easier for taxpayers to use the credit. As a matter of policy, research shows that the EITC boosts participation in the labor force and that the structure of the tax credit is effective at targeting low-income families. In addition to the federal EITC, 20 states including
Iowa and even some local jurisdictions have their own version of the EITC.