Recovery Act Tax Credits: Tax Relief for Working Families
December 15, 2010
Thousands of low- and middle-income working Ohioans received larger tax credits in 2009 due to the American Recovery and Reinvestment Act, according to a new report from Policy Matters Ohio. Changes to the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) programs brought an additional $376 million into Ohio. The report estimates that more than 640,000 children were directly assisted by the changes to these two programs.
The report comes out as Congress considers a series of tax reforms, including EITC and CTC expansions. The report details the changes including coverage of a third child and benefits up to a higher income level for married families under the EITC. The EITC program is the nation’s largest poverty relief program for working families, bringing more than $2.1 billion into Ohio for some 950,000 families. The maximum EITC credit was raised to $5,657 from $4,824 the previous year. Married filers with children received larger credits regardless of their income. The report also discusses changes to the CTC in which the credit, which is worth $1,000 per child, became more widely available.
Changes to the EITC program increased refunds to 313,000 families, bringing Ohio more than $121 million. Some 304,000 families benefited from the child tax credit with an average credit of $833. The report discusses the household budget impact of these credits. Refund dollars are often spent in the community on housing, food, and education.
Policy recommendations include:
1. Make ARRA expansions to the EITC and CTC permanent.
The EITC and CTC expansions help working families meet their own and their children’s basic needs and move toward financial stability. Returning to pre-ARRA benefit levels would result in a loss of $497 on average for the bottom 60 percent of working families. This is money that would not be spent by working families in their communities.
2. Enhance the childless worker portion of the EITC.
Many childless workers support children through part-time custody, child care payments, alimony, and other indirect arrangements that do not qualify children as dependents on the tax return.
3. Increase support to free tax preparation programs.
A broad method for increasing EITC and CTC claims has been a nation-wide effort to provide free or low-cost tax assistance for low-income families through an effort known as the Volunteer Income Tax Assistance (VITA) program. At the state-level, the Ohio Benefit Bank integrates public assistance and free tax preparation. Many eligible families do not claim credits and those who do, often pay high-costs to paid tax preparers. Methods to claim these credits needs improvement.