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Tag: earned income tax credit
Alabama Senator Tells IRS To Stop Picking On Southern Poor

Alabama Senator Tells IRS To Stop Picking On Southern Poor

On Monday, ProPublica published a map showing where IRS audits are most concentrated. The South stood out.

The reason is because of an intense focus at the IRS on auditing recipients of the earned income tax credit. The EITC is one of the country’s largest antipoverty programs, in the form of a tax refund for low-income workers, especially those with children. The typical EITC recipient earns less than $20,000 per year.

In practice, the IRS’ emphasis on EITC recipients means states with concentrations of low-income workers see the highest audit rates. One of those states is Alabama. Sen. Doug Jones (D-AL), wasn’t pleased.

“To take such a large portion of limited IRS resources and to focus them so intensely on rural communities in Alabama and the Southeast makes little fiscal sense,” Jones wrote in a letter to IRS Commissioner Charles Rettig. “Moreover, the practice appears to be blatantly discriminatory.” (An agency spokesperson previously told ProPublica that audit subjects are chosen without regard to race or where the taxpayer lives.)

The map, which stemmed from a study by Kim M. Bloomquist, formerly a senior economist in the tax agency’s research office, showed that the highest audit rates were to be found in rural, mostly African American counties in the South. Among states, Alabama had the fifth highest audit rate in the country, behind Mississippi, Georgia, Louisiana and Florida.

“In an effort to focus its resources and ensure fair treatment of all taxpayers, I believe the IRS should undertake a full and thorough review of the policies and practices that led to such a disparate geographic impact of its annual audits,” Jones wrote. He ended his letter with a number of questions about IRS audit policies.

As we explained in December, Republicans in Congress have pressured the IRS since the 1990s to prevent payments of the credit to people who aren’t eligible for it. Meanwhile, critics, some within the IRS, such as Taxpayer Advocate Nina Olson, have long criticized the focus on EITC audits as disproportionate, especially since IRS studies show that far more revenue is lost through cheating by those higher up the income scale. Furthermore, in recent years, budget cuts have hampered the IRS’ ability to pursue wealthy taxpayers, while audits of EITC recipients, which are largely automated, have been slower to decline. The result is an increasingly unequal mix of audits.

Lawmakers will have an opportunity to ask Rettig about the audit choices in a hearing next Wednesday before the Senate Finance Committee.

“There are two tax codes in America, and there are also two enforcement regimes,” said Sen. Ron Wyden, D-OR), the committee’s ranking member. “It takes significant resources to go after wealthy tax cheats with savvy lawyers and accountants, and the IRS simply doesn’t have those resources after years of Republican attacks. Ensuring wealthy taxpayers pay what they owe shouldn’t be a partisan issue, and this will be a focus with Commissioner Rettig.

ProPublica is a Pulitzer Prize-winning investigative newsroom. Sign up for The Big Story newsletter to receive stories like this one in your inbox.

IMAGE: Senator Doug Jones, the Alabama Democrat who criticized the IRS for conducting too many senseless audits of his rural poor constituents.

Does Your Teen Need to File a Tax Return?

Does Your Teen Need to File a Tax Return?

Dear Carrie: My daughter is 16 and has her first paying job. Does she need to file a separate tax return? — A Reader

Dear Reader: Congratulations to your daughter — and to you. A first job is an important milestone for both kids and parents. It’s a step toward independence and personal responsibility for your daughter. And it’s an opportunity for you to teach her some financial realities.

Taxes are definitely a part of that financial reality. So I’ll first discuss the parameters for filing a tax return. Then I’d like to get into ways you can help your daughter learn to manage her money wisely — which, to me, is the most important lesson of all.

Basic Guidelines for Filing a Teen’s Tax Return

Whether or not your daughter needs to file a separate tax return depends on three basic factors:

–Is she considered a dependent by the IRS?

–How much income does she have?

–What type of income does she have?

The IRS considers a child to be a dependent if he or she:

–Is under 19, or under age 24 and a full-time student, or permanently disabled at any age;

–Lives with you more than 50 percent of the year

–Doesn’t provide more than half of his or her own financial support.

Next, you need to look at her income, both the amount and type.  Here’s where it gets more complicated, because there are different rules and income limits for earned income from a job, unearned income from dividends, interest or investment gains — or a combination of both

For Earned Income Only

This is pretty straightforward. A dependent who doesn’t have unearned income only has to file a separate tax return if earned income is above the standard deduction — $6,300 for 2015. So if your daughter earned less than that, she wouldn’t have to file.

But it could be a good idea to do it anyway. If her employer withheld federal income tax, she might be entitled to a refund. You don’t want her to miss out on that. Plus, it’s a good learning experience.

For Unearned Income Only

Unearned income is a different story. If a child has unearned income above $1,050 for 2015, a tax return is required. But when dealing with unearned income only, you can choose to either file a separate return for your child or include that income on your own return. One caveat: If you include it on your return, it could boost you into a higher tax bracket — and possibly higher tax rates.

For a Combination of Both

The rules change again if a dependent has both earned and unearned income.

In this case, you need to file a separate return if:

–Unearned income is more than $1,050.

–Earned income is more than $6,300.

–Combined income totals more than the larger of $1,050 or earned income (up to $5,950) plus $350.

To make this a little clearer, let’s say your daughter had $100 in interest income plus $5,000 in earned income. She wouldn’t have to file a return because both her unearned and earned incomes are below the thresholds and her total income of $5,100 is less than $5,350 (earned income plus $350). However, if she had $400 in interest income, she would have to file because her total income of $5,400 would be more than her earned income plus $350.

Now let’s say your daughter had $400 in earned income and $800 in interest income. In this case, she would have to file a return because her total income of $1200 is more than $1050.

All this can be a bit confusing, so unless your daughter’s situation is fairly straightforward, I’d talk to your tax professional. Also check out IRS Publication 929 for a thorough treatment and worksheet.

A Word on the “Kiddie Tax”

You may have heard of the Kiddie Tax, so I think that’s also worth a mention. This has to do with tax rates on unearned income.

For 2015, your child’s unearned income less than $1,050 is not taxed. Unearned income between $1,050 and $2,100 is taxed at his or her rate. Unearned income above $2,100 is taxed at the parent’s highest income tax rate. If your child has a lot of unearned income, that could be pretty significant.

Going Beyond Taxes

Whether or not your daughter files a return, I’d definitely talk to her about taxes and withholding, and have her work with you as you prepare either hers or your own return.

Then take it beyond taxes and talk about responsible money management. Now that your daughter is earning her own money, help her create a budget so she can make the most of it. For instance, what do you expect her to pay for? Clothes? Entertainment? Gas? Have her keep track of her expenses monthly (an online budget calculator can help).

Suggest that she save a certain percentage of her paycheck each month for some future goal. If she hasn’t done so already, help her open both checking and savings accounts and set up an automatic deposit from one to the other. Now that she has earned income, you might even help her open a Roth IRA.

Establishing good money habits early is incredibly important but, in general, kids don’t learn much about managing money in school. It’s up to you. So show her how you manage for both the short- and long-term. If you take it step-by-step, and include her where appropriate in your own money strategies, you’ll set her on the path to being able to not only handle her taxes, but her financial future, as well.

Carrie Schwab-Pomerantz, CERTIFIED FINANCIAL PLANNER(tm), is president of Charles Schwab Foundation and author of The Charles Schwab Guide to Finances After Fifty, available in bookstores nationwide. Read more at http://schwab.com/book. You can e-mail Carrie at askcarrie@schwab.com. This column is no substitute for an individualized recommendation, tax, legal or personalized investment advice. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner or investment manager. To find out more about Carrie Schwab-Pomerantz and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

COPYRIGHT 2015 CHARLES SCHWAB & CO., INC. MEMBER SIPC.

DIST BY CREATORS SYNDICATE, INC. (0216-0833)

Photo: Flickr user Cliff. 

President Obama Proposes Extending Earned Income Tax Credit Program For The Poor

President Obama Proposes Extending Earned Income Tax Credit Program For The Poor

On Tuesday, President Barack Obama announced his 2015 budget, and much attention was immediately given to his proposed expansion of the Earned Income Tax Credit (EITC).

“At a time when our deficits are falling at the fastest rate in 60 years, we’ve got to decide if we’re going to keep squeezing the middle class or if we’re going to continue to reduce the deficits responsibly while taking steps to grow and strengthen the middle class,” Obama said.

Part of the president’s strategy for doing so includes a proposal to expand the EITC, an anti-poverty program that subsidizes low-income workers who meet the minimum income requirement.

Though first enacted under President Gerald Ford, in recent years the EITC has disproportionately benefited only some of the many Americans it was meant to help and protect. The biggest critique is that it benefits low-income workers with children, but not those without.

Under Obama’s proposed budget, however, 7.7 million workers would qualify for a larger credit and an additional 5.8 million would be newly eligible for the program. According to USA Today, among these are approximately 3.3 million young workers – aged 21 to 24 – and 300,000 senior workers – aged 65 and 66.

The expansion could also lift 500 million people out of poverty.

In order to fund the $60 billion expansion, the president proposes closing two major tax loopholes that benefit only particular corporations and high-income, self-employed workers.

How the measure is received by the far right is perhaps the most interesting part of the ambitious proposal.

With midterm elections approaching, Republicans have expressed support for the EITC program, in a move that may aim to distract from one of Democrats’ most popular positions: a minimum-wage increase.

As Mother Jones points out, Republicans and the idea of an EITC extension “have been sworn foes for the past two decades.” Still, that did not stop House Budget Committee Chairman Paul Ryan (R-WI) from describing the EITC as “an effective tool for encouraging and rewarding work among lower-income individuals” in his most recent report that actually calls for cuts to anti-poverty programs. Other Republicans advocate “reforming” the EITC, to avoid completely speaking out against it.

Yet, even with Republicans not directly voicing opposition to the EITC, President Obama’s proposal will probably not gain much traction in Congress — especially not if it relies on closing two major tax loopholes: one that allows managers of private equity funds to receive a share of future investment returns as capital gains so that the income is then exempt from payroll and self-employment tax, and one that allows self-employed workers to avoid payroll taxes by establishing S-corporations that then account for a only a portion of the total earnings subject to taxes.

If the proposed budget had any chance, the notion that funding for low-income workers would come from some of the nation’s wealthiest and largest corporations may have ruined that.

AFP Photo/Brendan Smialowski

Lying Again? Scholars Detect Deception In Ryan’s Poverty Report

Lying Again? Scholars Detect Deception In Ryan’s Poverty Report

For the sake of America’s poor, a sincere conservative effort to improve the programs that serve them is very desirable – especially so long as Republicans control the House of Representatives, where they habitually yearn to cut or defund those same programs. For months Washington has eagerly awaited the latest version of “compassionate conservatism,” promised by Rep. Paul Ryan (R-WI) and his publicists.

But what the House budget chair and 2012 vice-presidential candidate delivered on Monday must drastically lower any such expectations.

“The War on Poverty: 50 Years Later” produced by Ryan’s House Budget Committee staff is merely more of the same old right-wing propaganda against the safety net, and worse.

Promoted as a scathingly rigorous analysis of the impact of poverty programs since the Sixties, its 200-plus pages cite dozens of academic researchers. Yet it more resembles an ideological tract than the social science meta-study it purports to be. Having determined in advance that nearly all of the nation’s anti-poverty spending is wasteful, counterproductive, and damaging to the work ethic of poor people, Ryan and his staff perform an audacious statistical stunt: They prove those programs have failed by pretending those programs don’t exist.

Poverty in America is officially determined by household income, and any official measurement of the number or percentage of poor Americans – those living “below the poverty line” — is determined by their income alone. But in order to measure the effectiveness of government programs designed to reduce the impact of low incomes, it would seem logically necessary to add in those extra sources of cash, goods, and services. A family that receives food stamps and the Earned Income Tax Credit may be raised out of poverty, even if their income remained below the official poverty line.

But the Ryan report rejects such plain logic, relying instead on the official poverty numbers without assessing the impact of those programs – and then insists that because the number of families with low incomes remains around 15 percent, those programs have failed.

As the Center on Budget and Policy Priorities explains in a pithy review:

The report features the “official” poverty measure even though analysts across the political spectrum — and all three witnesses at a recent hearing that Ryan held, including the two Republicans he invited — have warned that the official poverty measure is deeply flawed for tracking changes in poverty over recent decades and for evaluating the impact of the safety net today.  The official measure ignores a very large share of the safety net — including SNAP (formerly known as food stamps), tax-based benefits such as the Earned Income Tax Credit and Child Tax Credit, and low-income housing assistance, among other programs.  Using a more comprehensive measure of poverty that analysts broadly favor, known as the Supplemental Poverty Measure (SPM), Columbia University researchers recently found that poverty had fallen markedly, from 26 percent in 1967 to 16 percent in 2012.  Ryan buries this fact, failing to note the deep reductions in poverty under the SPM since the 1960s until page 201 of his report.

Moreover, the SPM shows that in 2012, the safety net cut poverty nearly in half — shrinking the poverty rate from 29 to 16 percent.  Yet in its 200-plus pages, the Ryan report fails to mention these findings.

In other words, Ryan cooks the books (again!), this time to denigrate programs that the Republicans want to cut drastically, notably SNAP and Medicaid.

If such manipulations aren’t troubling enough, it now appears that some of Ryan’s copious academic citations are also misleading and perhaps fraudulent, with the same distorting effect. According to the Fiscal Times, a group of Columbia University researchers whose work is cited in the report complain that Ryan omits critical data from their study, which examines progress against poverty between 1967 and 2012. For reasons best known to the Wisconsin Republican, his team simply left out the data from 1967 to 1969 – and artfully diminished the very substantial improvement gauged during those years.

Not so impressive for a politician claiming wonk status.

Said a surprised Jane Waldfogel, one of the Columbia professors who co-authored the study cited so misleadingly by Ryan: “In my experience, usually you use all of the available data. There’s no justification given. It’s unfortunate because it really understates the progress we’ve made in reducing poverty.” 

Like any faithful House Republican, Ryan and his staff also ignore the beneficial impact of health care reform. Based on completely outdated figures, they insist that poor families are discouraged from working (as if there are plenty of jobs) because they fear making too much money to qualify for Medicaid. But as CBPP also points out, that problem has been erased by the Affordable Care Act, which sharply increases the amount that a household can earn before losing Medicaid to 136 percent of the poverty line. Above that line, a working family can qualify for Obamacare subsidies and retain its insurance. But the Ryan report conceals that salient fact, too.

The report does offer a few brighter moments — including its advocacy for an expansion of the Earned Income Tax Credit, which is proposed by President Obama in his budget today as well. Time will tell whether House Republicans join the White House to improve that traditionally bipartisan program, a favorite of both Presidents Reagan and Clinton. A safer bet is that they will surrender instead to the Tea Party caucus, which abhors any cooperation with this president.

Either way, there is nothing in Ryan’s latest effusion to dispel the impression of intellectual impoverishment left by his first foray in the direction of “compassionate conservatism” – always an embarrassing oxymoron, and now a synonym for scholarly deception as well.

Photo: Speaker Boehner via Flickr