What is the earned income tax credit? Q.What is the earned income tax credit? A.The earned income tax credit subsidizes low-income working families. The credit equals a fixed percentage of earnings from the first dollar of earnings until the credit reaches its maximum. The maximum credit is paid until earnings reach a specified level, after which it declines with each additional dollar of income until no credit is available. Read more about What is the earned income tax credit?
How do taxes affect income inequality? Q.How do taxes affect income inequality? A.Because high-income households pay a larger share of their income in total federal taxes than low-income households, federal taxes reduce income inequality. But federal taxes have done little to offset increasing income inequality over the past 40 years. Read more about How do taxes affect income inequality?
How does the federal tax system affect low-income households? Q.How does the federal tax system affect low-income households? A.Most low-income households do not pay federal income taxes, typically because they owe no tax (as their income is lower than the standard deduction) or because tax credits offset the tax they would owe. Some receive substantial rebates via refundable tax credits. However, nearly all low-income workers are subject to the payroll tax. Read more about How does the federal tax system affect low-income households?