The Working Families Tax Relief Act Dramatically Expands Tax Credits for Working Families
In the aftermath of the Tax Cuts and Jobs Act’s (TCJA) passage, many households are now facing lower refunds this tax season. Corporations—the primary beneficiaries of the TCJA—and the wealthy have seen their benefits increase under this new tax code. Unfortunately, the problems and missteps of the TCJA do not end here, as the legislation has been shown to potentially widen the racial wealth divide.
Fortunately, Senators Sherrod Brown (D-OH), Michael Bennet (D-CO), Dick Durbin (D-IL) and Ron Wyden (D-OR) have a plan to address the failings of the TCJA. That plan, introduced today, is the Working Families Tax Relief Act, which aims to expand tax credits for working families, while also addressing critical gaps in access and equity within our most powerful tax programs for working families. (See our press release on the new legislation here.)
Specifically, the Working Families Tax Relief Act would expand the Earned Income Tax Credit (EITC) for childless workers and boost the credit for families with children. The EITC is the most effective anti-poverty program in the nation. To this point, in 2016, the Center on Budget and Policy Priorities found that the EITC lifted nearly 6 million people out of poverty, with about half of those being children. And yet, despite its proven power and success, the EITC was not expanded in the TCJA. In fact, by using a slower inflation measure, the TCJA actually reduces the benefits the program delivers to families over time.
By raising the maximum credit from $529 to $2,074, expanding the eligibility age range of the program from 25-64 to 19-67 and increasing the maximum credit families with children could receive by about 25%, the Working Families Tax Relief Act not only builds on the EITC’s already monumental success, but also supports more low- and moderate-income households.
Beyond the expansion of the EITC, the Working Families Tax Relief Act also improves the Child Tax Credit (CTC) for lower income families with young children. While the TCJA increased the maximum CTC available per child from $1,000 to $2,000, it limited the refundable portion of the CTC to $1,400 per child. In contrast to the TCJA, the Working Families Tax Relief Act would make the $2,000 CTC fully refundable so that all working families who need the support can fully benefit from it.
The bill also creates an additional tax credit for households with children under six, the Young Child Tax Credit (YCTC), which would add a $1,000 refundable credit to a family’s CTC. Both the CTC and the YCTC would be available in regular, monthly payments and adjusted for inflation moving forward.
The Working Families Tax Relief Act includes provisions to improve access to these programs in Puerto Rico. For example, though Puerto Rico suffers from high poverty rates, families on the island can only get the CTC if they have three or more children (on the mainland, families with one or two children can access the CTC). The Working Families Tax Relief Act would allow Puerto Rican families with children to be eligible under the same criteria as families in the rest of the country. The legislation would also double Puerto Rico’s current EITC.
Lastly, the bill would allow the Internal Revenue Services (IRS) to regulate paid tax preparers. Today, paid tax preparers are unregulated in 46 states. While these unenrolled paid preparers do over half of our nation’s tax returns, they have the lowest accuracy rates in the country. In contrast, the Volunteer Income Tax Assistance program (VITA) has a 93% accuracy rate—one of the highest in the tax preparation industry—and volunteers have to be certified annually through an IRS exam. Paid tax preparer regulation would reduce fraud and better protect tax filers from unscrupulous paid tax preparers.
In stark contrast to the TCJA—which did not increase financial support to America’s working families who need it the most—the Working Families Tax Relief Act represents one of the most ambitious proposals to turn the tax code right-side up to support working families. More importantly, by improving upon already effective policies such as the EITC, the CTC and paid tax preparer regulations—while ensuring that all Americans have equal access to the tax code no matter where they live—the legislation will help countless more low-income households be lifted out of poverty.
Contact your senators and representative and ask them to co-sponsor the Working Families Tax Relief Act!