Latest news with #EITC
Forbes
3 days ago
- Business
- Forbes
Is The Proposed EITC Pre-Certification A Good Idea Or Bad?
EITC - earned income tax credit acronym business concept. vector illustration concept with keywords ... More and icons. lettering illustration with icons for web banner, flyer, landing page, presentation The Senate's version of President Trump's favored massive tax and spending bill had looked to add something to the tax code's Earned Income Tax Credit. The EITC has been a broadly popular measure for the past 50 years as a mechanism that helps low-income workers. There are admitted problems with the program that can lead to a high percentage of incorrect filings. The Senate wanted to require pre-certification by the IRS each year. However, critics point to some issues this would create. What The EITC Is Taxes on low incomes, even if a relatively low percentage, can feel devastating because there is so little money to begin with. Under 2025 tax brackets, a $25,000 income would incur income tax of $2,761.50. Federal payroll taxes for those making less than $200,000 a year are 15.3%. The worker's portion is 7.65%, so another $1,912.50 for a total of $4,674 in taxes, leaving the worker with $20,326. The EITC is a refundable tax credit, which means people eligible for it can get a tax refund larger than what they pay in taxes. This is not a bug but an intentional feature to help low-income families. As the Tax Foundation explains, the credit was enacted in 1975 to 'offset income and payroll taxes for low-income workers' because they were paying out significant portions of their low incomes. The intent was to reduce poverty while promoting work, instead of offering a welfare check. 'Research indicates that the EITC has successfully promoted work over receipt of means-tested benefits,' wrote Scott Winship at the American Enterprise Institute. Problems With The EITC There are some significant problems with the EITC structure. The IRS says that about a third of EITC claims are paid in error. Some of the errors are 'intentional disregard of the law.' Others — many, as tax experts have told me — are unintentional and the result of the law's complexity. Some of the common errors include claiming a child who doesn't qualify (having children isn't a requirement for the credit), more than one person claimed a child, Social Security numbers or last names don't match, someone is married but filed as single head of household, and underreporting income or overreporting expenses. According to the Tax Foundation, the EITC can distort people's incentives, including a marriage penalty in which unmarried couples filing individually have lower taxes than married couples, disparities between workers with and without children, and even work disincentives in a phaseout stage in which higher incomes see lower payments. In addition, there is criticism of the once-a-year approach of the EITC, as it leaves people sweating much of the time. EITC Pre-Certification The pre-certification proposal doesn't address many criticisms of the program. As Alice Lin at Georgetown Law's Center on Poverty and Inequality wrote, the bill would hold refunds for months for certain EITC taxpayers starting in 2026 if there was a competing claim for a child. (Back to one of the common error types, which often can be a misunderstanding of the rules and not an intentional dodge.) Under a new pre-certification program in 2028, all EITC taxpayers would have to submit documents annually proving eligibility. 'Moreover, this puts the timing of taxpayers' refunds at the mercy of what other taxpayers did,' Lin wrote. Janet Holtzblatt at the Tax Policy Center noted that the George W. Bush administration tried a pre-certification pilot that required third-party documentation. It was 'far less efficient in stopping erroneous refunds than the IRS's practice of freezing refunds and contacting people after they have filed a tax return with a suspicious-looking credit.' There were also 'substantial burdens' that eligible claimants had to bear. 'The IRS determined that its current methods stopped more erroneous payments relative to the agency's administrative costs,' Holtzblatt wrote. 'Consequently, the IRS rejected precertification.' Would it be better this time? Maybe, maybe not, but given that congressional Republicans are looking to cut funding to the IRS, how is the extra work supposed to get done? It probably isn't, so perhaps the wise move is to avoid imposing a program on what has been an underfunded agency, and probably will be even more so, when something similar has been unsuccessfully tried before.
Yahoo
23-06-2025
- Business
- Yahoo
Senate scales back additional Trump tax cuts in its version of ‘big, beautiful bill'
Senate Republicans' tax and spending cut bill makes many of the core elements of their 2017 tax cuts permanent but scales back additional cuts from what the House passed. The Senate Finance Committee unveiled its version of the central piece of President Trump's 'big, beautiful bill' on Monday. The Senate bill locks in existing federal tax brackets, boosts the standard deduction and maintains the termination of personal exemptions — all without sunsets. In contrast with the House version, the bill sets a lower increase for the child tax credit, raising it to $2,200 per child as opposed to the House's $2,500. The bill creates new deductions for taxes on tips, overtime pay and car loan interest but doesn't make them fully deductible. Tips are deductible up to $25,000 through 2028. Overtime pay is deductible up to $12,500, or $25,000 for joint filers, through 2028. Auto loan interest is deductible up to $10,000, also through 2028. Notably, the legislation reestablishes the state and local tax (SALT) deduction cap at $10,000. The House had agreed after intense debate to raise it to $40,000. The reversion has incensed members of the SALT Caucus in the House who had threatened to vote against the measure absent the deal — and maybe President Trump as well, who promised to 'get SALT back' while campaigning. Senate Majority Leader John Thune (R-S.D.) told reporters on Monday that SALT would continue to be 'a negotiation,' but the total reversion nullifies the tenuous deal struck in the lower chamber. Additionally, the bill sets up savings accounts for children. Parents and relatives can contribute up to an inflation-indexed $5,000 annually of after-tax dollars into the accounts. For U.S. children born between 2024 and 2028, the government will contribute $1,000 per child into the accounts. In addition to a smaller boost in the child tax credit, the bill adds restrictions to the earned income tax credit (EITC), another tax break geared to help low-income workers. The new certification program for the credit will require taxpayers to provide information and documentation 'as the Secretary by regulation requires.' Critics of the provision were quick to point out that it will likely result in many new audits of lower-income taxpayers, which studies have shown can be biased against Black American taxpayers in particular. 'The EITC pre-certification requirement would lead to an unprecedented number of audits, overwhelmingly focused on low- and moderate-income workers,' Greg Leiserson, senior fellow at the New York University Tax Law Center, wrote on Monday. Stanford University researchers found in 2023 that the IRS 'disproportionately audits Black taxpayers' due in part to the way the earned income tax credit is administered. The legislation extends the increased inheritance and gift tax exemption cap of $15 million for single filers and $30 million for married couples in 2026, indexing the amount for inflation. The pass-through entity deduction — cherished by many businesses and always top of mind for Republicans — is kept at 20 percent and made permanent. This is another difference from the House version, which increased it to 23 percent. This pass-through deduction's phase-in range is increased to $75,000 and $150,000 for joint filers. Changes are made for businesses designated as a 'specialized service trade or business,' which covers some professional service industries. Other business tax breaks are in the Senate text as well, including a trifecta of changes from 2017 that had already expired and were the subject of tax legislation that was voted down last year. Research and development costs are made immediately deductible and will be retroactive to 2024. Bonus depreciation, allowing companies to immediately deduct depreciation costs, is made permanent. The allowance is increased to 100 percent for equipment bought and used after Jan. 19, 2025. Business interest expenses will get an increased cap of deductibility corresponding to the EBITDA accounting standard, as opposed to EBIT, which excludes depreciation and amortization costs. This is a tax break especially valued by leveraged buyout firms who finance investments with borrowed money. Copyright 2025 Nexstar Media, Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
CNBC
10-06-2025
- Business
- CNBC
Trump's 'big beautiful' spending bill could make it harder to claim this low-income tax credit
As Senate Republicans debate President Donald Trump's "big beautiful bill", a lesser-known provision from the House-approved package could make it harder to claim a low-income tax credit. If enacted as written, the House measure in the "One Big Beautiful Bill Act" would require precertification of each qualifying child for filers claiming the so-called earned income tax credit, or EITC, starting in 2028. Under current law, taxpayers claim the EITC on their tax return — including Schedule EIC for qualifying children. The provision aims to "avoid duplicative and other erroneous claims," according to the bill's text. But policy experts say the new rules would burden eligible filers, who may forgo the EITC as a result. The measure could also delay tax refunds for those filers, particularly amid IRS cutbacks, experts say. More from Personal Finance:Job market is 'trash' right now, career coach says — here's whyWhat a 'revenge tax' in Trump's spending bill could mean for investorsWhat Trump's plan to slash Pell Grant to lowest level in a decade means for you "You're going to flood the IRS with all these [EITC] documents," said Janet Holtzblatt, a senior fellow at the Urban-Brookings Tax Policy Center. "It's just not clear how they're going to process all this information." Holtzblatt, who has pushed to simplify the EITC for decades, wrote a critique of the proposed precertification last week. "This is not a new idea, but was previously considered, studied and rejected for very good reasons," Greg Leiserson, a senior fellow at the Tax Law Center at New York University Law, wrote about the proposal in late May. Studies during the George W. Bush administration found an EITC precertification process reduced EITC claims for eligible filers, Leiserson wrote. During the study, precertification also yielded a lower return on investment compared to existing EITC enforcement, such as audits, he wrote. One of the key benefits of the EITC is the tax break is "refundable," meaning you can still claim the credit and get a refund with zero taxes owed. That's valuable for lower earners who don't have a tax bill, experts say. To qualify, you need "earned income," or wages from work. The income phase-outs depend on your "qualifying children," based on four IRS tests. "Eligibility is complicated," and residency requirements for qualifying children often cause errors, said Holtzblatt with the Tax Policy Center. For 2025, the tax break is worth up to $8,046 for eligible families. You can claim the maximum EITC with adjusted gross income up to $61,555 for single filers and $68,675 for married couples filing jointly. These phase-outs apply to families with three or more children. As of December 2024, about 23 million workers received the EITC for tax year 2022, according to the IRS. But 1 in 5 eligible taxpayers don't claim the tax break, the agency estimates. Nine Democratic Senators last week voiced concerns about the House-approved EITC changes in a letter to Senate Majority Leader John Thune, R-S.D., and House Speaker Mike Johnson, R-La. If enacted, the updates would "further complicate the EITC's existing challenges and make it more difficult to claim," the lawmakers wrote. Higher earners are more likely to face an audit, but EITC claimants have a 5.5 times higher audit rate than the rest of U.S. filers, partly due to improper payments, according to the Bipartisan Policy Center. The proposed EITC change, among other House provisions, still need Senate approval, and it's unclear how the measure could change. However, under the reconciliation process, Senate Republicans only need a simple majority to advance the bill.
Axios
05-06-2025
- Business
- Axios
Senators warn big bill would make credit harder to get for low-income families
Buried in the " big, beautiful bill" is a provision that would require low-income Americans to pre-certify to get the Earned Income Tax Credit, a half-century old benefit that keeps millions of families out of poverty. Why it matters: Those hurdles would make the credit harder to get, or potentially even dissuade people from filing, say tax experts and Democrats who oppose the bill. State of play: The provision hasn't gotten a lot of attention, compared to changes to Medicaid and SNAP. Now some Democrats, led by Nevada Sen. Catherine Cortez Masto, are demanding Republicans cut it from the final bill. In a letter Thursday, addressed to Senate Majority Leader John Thune and House Speaker Mike Johnson, the Dems note that 20% of eligible recipients already miss out on the credit because they're unaware it exists or believe it's too complicated. The new changes, "only exacerbate the EITC's existing shortcomings by creating more red tape and complexity for workers hoping to claim the credit," they write. "This will lead to fewer eligible workers claiming the EITC, resulting in an effective tax increase on America's working families." Senators Michael Bennet (Colo.), Cory Booker (NJ), Tim Kaine (Va.) and Ron Wyden (Ore.) and a few others signed on. The big picture: The provision is one of a handful in the bill that would impose more administrative hurdles for low-income Americans. There are new and expanded work requirements for Medicaid and SNAP, and a requirement that some adults re-certify for health insurance under the Affordable Care Act twice a year. Tax breaks for higher-income individuals and businesses do not appear to include any such requirements, which impose what some call a "time tax" on working people that ultimately winds up discouraging them from using benefits. How it works: The bill directs the Treasury Department to establish a process for taxpayers to obtain a "qualifying certificate" for each child they're claiming under the deduction. It's not clear how the IRS — already struggling after staffing cuts under DOGE — would do this. The requirement would take effect in 2028. If taxpayers don't have such a certificate, they'd be denied the refundable portion of the tax credit i.e., the money they get back in their refunds. By the numbers: On average, eligible taxpayers got a $2,743 from the credit in 2023, per IRS data, the most recent available. For tax year 2024, it was worth a maximum of $7,830 for families with three or more children. What they're saying: "The IRS will need to handle potentially tens of millions of qualifying child applications, which will likely trigger a deluge of phone calls and requests for assistance," per a report from the Tax Law Center at NYU. "Taxpayers who fail to navigate the system successfully will not receive their credit, even if eligible." The provision is effectively a "backdoor cut" to the EITC, writes the author of the NYU analysis in a Substack post. "[The] bill would increase scrutiny and burden for low-income taxpayers even as its tax cuts for the wealthy have no similar requirements," writes Greg Leiserson, who previously was a senior economist in the Biden Council of Economic Advisers. The other side:"Basic eligibility checks for government programs are not only a reasonable ask of beneficiaries, but a commonsense check against waste, fraud, and abuse," White House spokesman Kush Desai said in a statement. "It's both condescending and out-of-touch for so-called 'experts' to automatically assume that everyday Americans are either too stupid or too lazy to verify their income – as they do every day for a loan, credit card, or new lease application – when thousands of dollars' worth of government benefits are on the line." Flashback: A provision like this was tried decades ago and was later abandoned because it deterred eligible workers from claiming the credit and was costly to implement relative to any savings.
Yahoo
02-06-2025
- Business
- Yahoo
Dems mostly pleased, GOP ‘shocked' as state budget deal solidifies
State legislators clashed Monday over the final version of the state's two-year budget that was hailed by Democrats for providing additional money for Medicaid, nonprofit organizations, special education, and the working poor. The plan calls for sending checks of $250 to about 85,000 lower-income households who already qualify for the earned income tax credit for the working poor. The money will be directed to the neediest families with children; budget negotiators dropped a previous Democratic plan that would have provided a child tax credit for families earning as much as $200,000 per year. The massive, 693-page document pays for everything from dental care for prison inmates to pay raises of 3.5% for Superior Court judges and others whose salaries are tied to the judges. Lawmakers were preparing to vote as early as Monday night on the two-year, $55.8 billion package. The debate did not start until 4:45 p.m. and was continuing Monday night. House Speaker Matt Ritter of Hartford said Democrats are broadly pleased with the final compromises made in recent days with Democratic Gov. Ned Lamont. 'People are very happy to make the investments in child care that we're making, to have the child tax credit through the EITC program … to do the massive amounts of Medicaid funding we're doing, $20 million [in the first year] and $45 million,' Ritter said. 'People are really, really happy. A lot of people never thought we'd get to this point. It's a reminder that if you just keep going, if you keep negotiating, if you keep coming up with ideas, you can solve even the most difficult of problems. But Republicans had a sharply different view, blasting the budget as a bloated document that did not closely follow the fiscal guardrails that were adopted in 2017 by the legislature and have been credited with restoring the state's fiscal health in recent years. House Republican leader Vincent Candelora of North Branford quoted the phrase, traditionally credited to the French philosopher Voltaire, that the perfect should not be the enemy of the good. 'This budget is neither perfect nor good for the state of Connecticut,' Candelora told reporters Monday. 'This budget eviscerates all of our fiscal guardrails. They are destroying the volatility cap. It is creating a gimmick in the first year to get around the spending cap. Finally, we are devoting the surplus and the revenue cap permanently to an off-budget early childhood account. … In the long run, it is setting up the state of Connecticut for failure and tax increases. … I am shocked that the governor would agree to this budget.' Democrats, though, said flatly that the budget remains under the spending cap in both years, as required by state law. Candelora said Democrats are not setting aside enough money to pay down pension liabilities because some of the money will be earmarked for other programs like the early childhood endowment fund that is expected to receive $200 million this year. 'They are acting as if we are never going to see another recession for the rest of our lives,' Candelora told reporters at the state Capitol. Rep. Tammy Nuccio of Tolland, the ranking House Republican on the budget committee, said the state is coming off the 'sugar high' of billions in federal money from the coronavirus pandemic and is now finding it difficult to pay for multiple programs. Even with the spending cap, the state is able to increase spending by about $1 billion next year to $27 billion, up from $26 billion. A longtime accountant and financial analyst for large insurance companies like Cigna and Aetna, Nuccio said the breakneck pace of the legislative session, where staff members literally work through the night to cobble together documents at the last minute, is not common outside the Capitol building. 'In the real world, this doesn't happen,' Nuccio said on the House floor. 'They dropped a 700-page document at 4 o'clock in the morning. … We've gotta read it in less than 12 hours.' Republicans and the Connecticut Business and Industry Association were also concerned that the budget includes Lamont's proposed change to the 'unitary' tax that they said would lead to tax increases for large, multi-state corporations like Electric Boat, Wal-Mart, Raytheon, Amazon, Home Depot, Lowe's, AT&T, Verizon, and the parent company of Sikorsky helicopters, among others. Amazon is now the fifth-largest employer in the state, and the unitary tax would hit about 20 major corporations, officials said. The tax has not been mentioned much at the state Capitol in recent years, but Fairfield-based General Electric Co. cited the tax among the reasons that the company decided to move its headquarters to Boston during the tenure of then-Gov. Dannel P. Malloy. But Lamont and his team are in frequent contact with top business leaders, and he said after the initial proposal was released that the leaders had not raised major objections. Despite criticisms, Lamont's chief spokesman, Rob Blanchard, said Connecticut is in much better fiscal shape than some other states. 'This biennium budget makes smart investments in our future, our communities and schools, all while prioritizing affordability, holding the line on taxes, and keeping us on a sound fiscal path,' Blanchard said. 'More importantly, it averts the mistakes of the past by making significant payments on our pension liabilities, preserves the strength of our fiscal guardrails and continues to grow our historic $4.1 billion Rainy Day fund—all of which will guard against economic headwinds. While other states are cutting services, raising taxes or wishing for a Rainy Day fund as robust as our fund, Connecticut has worked hard to turn things around economically and maintain the progress that avoids those tough choices.' Rep. Maria Horn, a Litchfield County Democrat who represents multiple towns, said the state is operating under various constraints that make budgeting difficult. 'We cannot do everything,' Horn said, adding that choices were made to help the most vulnerable citizens. Republicans and hospitals were also concerned about an increase in the hospital tax that is designed to raise an additional $375 million in the first year and $400 million in the second year. They argued that the money is dependent on Connecticut receiving a waiver from the federal government, but the state has not received the waiver yet. 'It's really a hope and a prayer,' Candelora said. The Connecticut Hospital Association, whose lobbyists testify on multiple bills, said the budget would not be good for hospitals. 'The tax increase on hospitals and proposed cuts to healthcare providers contained in this budget will be devastating for hospitals, their workforce, and their patients,' the association said. 'This tax increase is far greater than what Governor Lamont proposed earlier this year. It will leave hospitals facing a staggering cut of hundreds of millions of dollars, while the state uses federal dollars to balance its budget without any action to increase Medicaid reimbursement for care provided to patients in hospitals. These policies will move Connecticut backward in our collaborative efforts to make healthcare more affordable and accessible.' Lawmakers were also concerned about a narrowly written provision that they believe could benefit only one company in the state. In order to obtain tax credits for research and development, the company must be 'a single member limited liability company that has more than three thousand employees in this state and is engaged in manufacturing, with expertise in mechatronics, alignment and sensor technology and optical fabrication.' Chris DiPentima, the president of CBIA, said the provision was designed to help ASML Wilton, a major company in Fairfield County. The company's website says it specializes 'in mechatronics, alignment and sensor technology,' which is exactly the language mentioned in the budget. DiPentima, though, says the research and development tax credits need to be expanded to much smaller companies like in Massachusetts, where companies with as few as five employees can earn the credits. Despite statements by various leaders that they had crafted a 'no-tax-increase budget,' DiPentima said that characterization is incorrect. 'There are business tax increases,' he told The Courant on Monday. 'We're losing sight of the importance of the business community to Connecticut's economy. … I've got major concerns with the work-around on the spending cap.' He added, 'This is the first time in five years where we've had business tax increases and a changing of the guardrails. … Is Connecticut losing its fiscal discipline again? That's this question mark. Are we going to get back to fiscal discipline?' Democrats have been pushing for years for a child tax credit, and their latest proposal called for a permanent, refundable credit of $150 per child for a maximum of three children, or $450 per year. That represented a sharp drop from an original proposal of $600 per child for an overall total of $1,800 per year. With various pressing needs on the tax and spending sides of the complicated state budget, lawmakers say they are often unable to award as much tax relief as they would like. The overall plan would have saved families a combined $82.7 million per year, but the idea was dropped as being too expensive and helping too many families at higher income levels. Lawmakers also dropped Lamont's proposal for an increase in the popular property tax credit to $350, up from $300, per tax filer. Lamont's proposal was expected to help 800,000 tax filers, officials said, as the income eligibility would have increased, an issue that had restricted the credit in the past. Nonprofit organizations, including those who hold contracts to perform various services that otherwise would be performed by state employees, were pleased with a funding increase in the second year. 'The budget is not everything we requested, but in the context of this year's discussions about budget restrictions, we are grateful for their choice to support programs that will improve thousands of lives and even save some,' said Gian Carl Casa, a former top state budget official who now leads the statewide nonprofit alliance. 'Rank-and-file lawmakers, including progressives, moderates and members of the Black and Puerto Rican Caucus, responded by making it clear that the people served by community nonprofits are a priority.' The nonprofits are expecting to receive $76 million in the second year, plus an additional $30 million for non-developmental disability providers. The deal also calls for an additional $66 million union settlement for providers and an additional $15 million for Medicaid rates above the appropriations committee total, officials said. 'Is this a perfect budget? No,' said Rep. Toni Walker, a longtime New Haven Democrat who co-chairs the legislature's budget committee. 'But we have a situation where we have a spending cap problem and a revenue problem.' Christopher Keating can be reached at ckeating@
