What is the earned income tax credit? Q.What is the earned income tax credit? A.The earned income tax credit subsidizes low-income working families. The credit equals a fixed percentage of earnings from the first dollar of earnings until the credit reaches its maximum. The maximum credit is paid until earnings reach a specified level, after which it declines with each additional dollar of income until no credit is available. Read more about What is the earned income tax credit?
How do IRS audits affect low-income families? Q.How do IRS audits affect low-income families? A.The IRS audits a disproportionate (but still small) share of tax returns that include EITC claims. The agency has found that average discrepancies between taxes owed and taxes paid are smaller on EITC returns than on all returns. Read more about How do IRS audits affect low-income families?
Why do low-income families use tax preparers? Q.Why do low-income families use tax preparers? A.Many low-income families owe no income tax but still must file a tax return to receive refundable tax credits, including the earned income tax credit. Those who do file often seek help, which nearly always comes from a paid preparer. The cost of that help erodes the net value of refundable credits. That cost might be worth bearing if preparers helped their clients claim tax benefits that otherwise might be missed, but many don’t. Read more about Why do low-income families use tax preparers?