Low-Income Tax Relief
Taxes are a burden to pay for many Americans. Because of this, the United States government over the years has shifted that burden more and more to higher-income earners. This was done to provide tax relief to low-income earners.
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Progressive Tax
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The U.S. tax code is structured as a progressive tax system designed to provide low-income tax relief. This means that the more you earn, greater is the percentage of the income tax you pay. This is unlike a fixed tax (like the sales tax) where the same percentage is paid by everyone. For example, if a fixed tax is 15 percent, someone who earns $50,000 a year would pay $7,500 in taxes and someone who earns $500,000 would pay $75,000. The higher wage earner pays more, but it is still the same portion of his or her income (15 percent). A progressive tax might tax everyone earning up to $100,000 a 10 percent tax, from $100,000 to $400,000 a 15 percent tax and everyone earning more than $400,000 a 20 percent tax. Using the same wage earners, the $50,000 earner pays $5,000 (10 percent) while the $500,000 earner pays $100,000 (20 percent). Again, the higher income earner is paying more, but also paying a larger portion of his or her income.
Earned Income Tax Credit
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The Earned Income Tax Credit (EITC) is a way for the federal government to give extra money to low-income wage earners through the tax system. Once a federal tax bill is calculated, the EITC cannot only pay for any taxes owed, but it can give you back more money than you paid into the system.
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Earned Income
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To qualify for the EITC in 2008, your earned income must be less than $38,646 filing single or $41,646 married filing jointly with two or more qualifying children for a maximum credit of $48,824. Your earned income needed to be less than $33,995 filing single or $36,995 married filing jointly with one qualifying child for a maximum credit of $2,917. Your earned income needed to be $12,880 filing single or $15,880 married filing jointly with no qualifying children for a maximum credit of $438. The lower your income, the greater the tax credit.
Tax Free or Partially Taxed Income
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Allowances also have been made for low-income earners for what income is even reportable. For seniors living on Social Security payments, only 85 percent of the payments are taxable. For citizens receiving welfare payments, these are considered tax-exempt and need not be reported.
Stats
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Nearly all of the income taxes in the United States (97 percent) are paid by the top 50 percent of wage earners in the country, according to the IRS. In 2006, about 32 percent of people filing tax returns owed no tax, according to the Tax Foundation and IRS. About 136 million returns were filed, but 43.4 million of them had no tax liability or they got back more than they paid into the system. The 43.4 million returns represented about 91 million people.
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