Low Income Tax Credit QuizTest your knowledge of the Earned Income Tax Credit and Child Tax Credit.(Click on the each question to find the answer)
Answers1. The Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) are “refundable” tax credits. What does it mean to be refundable and why is that important?If a tax credit is refundable, the household gets a tax refund if their credit is greater than what they owe in federal income tax. Because many low-income individuals and families owe little or no federal income tax, a refundable credit still allows them to get a substantial refund. Note: The EITC is fully refundable, meaning tax filers get the full difference between their credit and tax liability. For example, if your income tax liability is $1,000 and your EITC is $5,028, you would get a tax refund of $4,028. The CTC is only partially refundable, meaning the tax filer may only get part of their excess credit back as a tax refund (a complicated formula is used to determine the refund amount). 2. True or False: Low-income families who are eligible for the EITC or CTC pay no taxes.False. Even if their federal income tax liability is zero, they still pay other taxes, e.g. payroll taxes, sales tax, property tax, and other state and local taxes. In fact, a Citizens for Tax Justice analysis shows that low-income people pay a higher percentage of their income in state and local taxes than the richest 1 percent of taxpayers. Source: http://www.ctj.org/pdf/taxday2010.pdf 3. In 2009, the American Recovery and Reinvestment Act (ARRA) expanded the EITC for which two low-income groups?Larger families (3 or more children) and married couples. 4. How many people did the EITC lift out of poverty in 2009?6.6 million, including 3.3 children. Source: http://www.cbpp.org/cms/index.cfm?fa=view&id=2505 5. What is the current maximum Child Tax Credit for each eligible child?$1,000 6. How did ARRA expand the CTC?It lowered the minimum income a family had to earn to claim the CTC to $3,000. Before 2008, this threshold was about $12,000 per year, an amount that was adjusted upward each year for inflation. If the $3,000 threshold expires this year, the threshold will jump to nearly $13,000 in 2011. If this happens, a total of 7.6 million low-income children will lose their entire CTC. Source: http://www.cbpp.org/cms/index.cfm?fa=view&id=3085 7. Which families will be hurt the most if the ARRA CTC provisions expire?Families earning above $10,000. These families would lose 80 percent of their CTC benefits. Source: http://www.cbpp.org/cms/index.cfm?fa=view&id=3085 8. Approximately how much of the CTC will a full-time minimum wage family ($15,080 per year) with two kids lose if the ARRA expansions expire?$1,500 (from $1,725 down to $248). Meanwhile, family with two children earning $100,000 would still receive the full $2,000 credit ($1,000 per child). Source: http://www.cbpp.org/cms/index.cfm?fa=view&id=3085 9. If the current minimum threshold for CTC eligibility expires at the end of this year, how many children will fall back into poverty?600,000 children will fall back into poverty and 4 million more will fall deeper into poverty. Source: http://www.cbpp.org/cms/index.cfm?fa=view&id=3085 |