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To get the coronavirus rebates in the Coronavirus Aid, Relief, and Economic Security (CARES) Act this year, most people will have to file an income tax return for either 2018 or 2019. The opportunity to claim refundable tax credits encourages many low- and moderate-income families with children to file federal income tax returns, even when their income is so low that they may not be required to do so.
Because low-income workers who do not live with children get little or no benefit from refundable tax credits, they may have little incentive to file, except to claim over-withheld income taxes. As a result, many people in this group may not regularly file an income tax return. And that puts them at risk of losing out on the coronavirus payments of $1,200 for each adult ($2,400 for a married couple), just when they may need them the most. The best advice for these workers who had modest earnings last year is to file an income tax return for 2019 as soon as possible.
Over 25 million families benefit from the earned income tax credit (EITC) and child tax credit (CTC) each year, many of whom would not be required to file an income tax return – but benefit financially by doing so. About 25 million others claim just the child tax credit (CTC) (most of these taxpayers have large enough incomes that they are required to file a return). Together, the credits can add up to a substantial income boost. For example, a single parent with two children earning about $18,000 (just under the filing threshold for most single parents) can receive just over $8,100 in tax credits (about $2,300 in CTC and about $5,800 in EITC).
But childless workers are eligible for a much smaller EITC than workers with children—generally no more than about $500 and often much less. As a result, workers without children have much less incentive to file an income tax return to claim the credit. Because most single people have no income tax liability and so don’t need to file until they have income of at least $12,200, about 10 million single people could skip the process. Over the years, advocates have proposed several ways to increase the childless EITC and Congress is considering several bills that would do so. If an expansion was passed, prior research suggests that, over time, people will learn they are eligible for the EITC and will claim the credit. But that would take far too long to affect the coronavirus rebate payments now.
As long as childless workers remain largely left out of the EITC, they’ll remain harder to reach in times of economic stress, even if they are eligible for payments from the federal government. Maybe if we expand the EITC for childless workers now, many more low-income workers will access extra government support in the next recession.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.
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