TAX CREDITS AND LOW INCOME CHAO WENG HAO JIN TIANLUN GE

Tax Credit Tax incentive Reduces tax bills directly Exempt the low income earners Encourage behaviour like investment Tax credits are incentives provided by the government to certain tax payers. This incentives reduce the individual tax liabilities directly unlike tax deductions and exemptions which do so indirectly by reducing the taxable income. The government other, other than use the incentives to just exempt a small part of the low income earners tax, also uses them to encourage beneficial behaviour to the economy such as investments.

Classification of Tax Credits Non-refundable tax credits cannot be refunded to the taxpayer Refundable tax credits those in which the excess of the remainder when taxes are subtracted is returned to the taxpayer Tax credits may be either classified as refundable or non-refundable. Refundable tax credits are those in which the excess of the remainder when taxes are subtracted is returned to the taxpayer. On the other hand, non-refundable taxes cannot be refunded to the taxpayer. Therefore, where taxes are not owed, this class of taxes does not apply.

Types of Tax Credits Working tax credit (WTC) Child Tax Credit (CTC) There are two types of tax credit. These are : Working tax credit (WTC) and Child tax credit (CTC). WTC is paid to all those individuals who despite their work are on low incomes. This tax is given to every individual whether employed or self employed. Children are not a determinant of getting WCT. Consequently CTC are those tax credits paid to those who have children. Though CTC is paid in addition to child benefit, one does not have to be working to get it.

Determinants of Tax Credit Total amount of taxable income Disability Long-term health problems Number of hours worked Amount paid for childcare The tax authorities use certain factors to determine the amount of tax credit liable by individuals. Primarily, the total amount of taxable income is used to determine whether one is in the tax credit league. Whether, either of the family members is disabled or has a long-term health condition is also considered in determining the amount of the tax credit to be received. In addition, the number of hours that one works also helps in determining the tax credit. Finally,the tax authorities consider the amount one pays for their child's childcare when allocating tax credit.

Individual Income Tax Credits Low income subsidies Family relief Education and energy as well as other subsidies There are those tax credits availed to every citizen while others are uniquely set aside for specific individuals. These tax credits include: low income subsidies, family relief and education and energy subsidies among others.

Low Income Subsidies Provided to lower income individuals Based on differing factors-income, family and work status Often refundable Low income subsidies are set aside for those families earning low income in the country. These subsidies are based on differing factors which range from the income to family status and work status. This tax credits are often refundable.

Income Tax Credits Granted by US Credit for elderly and disabled Earned income credit Premium tax Mortgage interest Retirement savings contribution The United States grants a number of income tax credits to individuals. For instance, the elderly as well as the disabled individuals are availed to a non-refundable credit. The retired individuals who have reached a certain minimum limits in their retirement benefit plans are also issued with a non-refundable subsidy. The low income earners are given the earned income credit which is refundable and families or individuals who rely on a healthcare exchange to obtain an insurance policy are paid the premium tax which is also refundable.

Family Relief Adoption expenses credit Credit for child and dependent care Family tax credit Child credit The US provides non-refundable tax credits to families with children. The credits are issued per child basis or simply as a credit to cater for childcare expenses. Child credit is a per child basis credit offered for children under the age of 17 years. On the other hand, child and dependent care credit is issued to parents who must leave their children in pursuit of employment. Credit for adoption is paid to cater for individuals expenses incurred in adoption. On the other hand, family tax credit is paid for all dependent children 18 years or below.

Education and Energy and Other Subsidies Credit for first time home-buyers Purchase of non-business energy property credit Purchase of residential energy credit Mutually exclusive credits for both qualified tuition and other related expenses Education along with other expenses are also subsidised through tax credits. All persons buying a home for a first time are subsidised upto $7,500. Those purchasing energy properties that are non-business related as well those purchasing residential energy are also liable for credit. Finally, qualified tuition and other related expenses also qualify for credit.

References Simkovic, M. (2015). The Knowledge Tax. The University of Chicago Law Review, 1981-2043. Flores, Q. T. (2014). Tax credits for working families: Earned income tax credit. In National Conference on State Legislators. Accessed September (Vol. 20, p. 2014).

References Averett, S. L., Peters, H. E., & Waldman, D. M. (1997). Tax credits, labor supply, and child care. Review of Economics and Statistics, 79(1), 125-135.