2 Myths about Earned Income Tax Credit

Death and Taxes

Death and Taxes

I have read yet another article about taxes that had tons of comments complaining about the Earned Income Tax Credit (EITC) and how it isn’t fair. The actual article was about how you should figure your taxes so that you do not get a huge refund.

It never ceases to amaze me that people attack programs without bothering to look up the facts. Here are a couple myths about Earned Income Tax Credit:

MYTH #1 – EITC recipients are on Welfare

The two are unrelated. However, if you do not work then you cannot claim EITC. You must have wages that are earned (you must work for somebody who pays you or you must work in a business you own that earns a profit. Welfare wages are not “earned” and will not qualify somebody for the Earned Income Tax Credit.

So tell me how a person that has no income gets a tax refund of $8000 or more, So his (Jeff Schnepper’s) calculations are dead wrong. The average working class gets nothing while the wealthy and the dead beats get paid to do nothing with mine and your money. -Tom

Tom is quite simply, mistaken. The EITC does not give money to people without income. Furthermore, the average EITC is $2,216 (it ranges from $2 to $5657) so his claim of $8000 or more is also out of the question.

MYTH #2 – EITC recipients do not pay taxes

Everybody who earns an income pays taxes. Even if you only earn $10,000 a year, you will have to pay $1530 towards Social Security and Medicare taxes. If you work for somebody then they will pay half of that and if you are self employed then you will pay the full amount.

But those who get the earned income credit and typically pay NOTHING in taxes will still get that big fat refund from the government at my expense  Even though I pay more than $12,000 in mortgage interest alone each year and the fat cats are trying to take that from me as a deduction, but those who get the EITC are probably on welfare, and such. – Huebster

The highest EITC you can get is $5657 and that is reserved for people with three or more children filing joint and earning $12600-$21450 or filing single with three or more children and earning $12,600-16,450. That group might come out ahead since their payroll taxes would range from $2003-$3282. However, that still is not taking sales, property, state, and other federal taxes into account.

I would like to also add that the home mortgage deduction still exists and probably gets him a better deal that the EITC does for these low earned income folks (who, more than likely, would not claim a mortgage deduction). A $12,000 deduction for somebody making $50,000 a year is worth $3000. That same deduction for somebody making $100,000 a year is worth $3527, and somebody making $200,000 a year would pay $3960 less. That is higher than the average earned income tax credit ($2216).

We have a crazy tax code; one where everybody feels “entitled” for one reason or another. You may feel entitled because you own a home, give to charity, care for a child, make a lot of money, live below the poverty line, etc. When I see emotionally charged comments such as these, I try to remember that I am blessed. Personally, I would rather be in the group that is “entitled” to lower taxes because I own a home and give to charity than the group that is “entitled” to lower taxes due to being poverty-stricken, even if they do sometimes come out a little “ahead”.

In 2009 the EITC lifted 6.6 million people out of poverty, 3.3 million of those people were children.

{ 23 comments… read them below or add one }

1 kelliinkc January 28, 2011 at 8:55 pm

Great post!! So true. I, too, would rather get my deductions from interest and charitable donations than from struggling all year to get that small EITC. But, some people just have trouble counting their blessings.

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2 Heidi January 29, 2011 at 3:34 pm

Thanks. It’s amazing to me how people will find a way to complain about everything. The internet can make it worse because pot stirrers send out forwards in the first person so people believe it happened to them or leave bogus comments that people, who are already upset about the issue, are quick to believe.

I actually saw a blog post the other day that was, word for word, a bogus forward (and she was claiming it happened to her). One commenter left a link to snopes showing the email was incorrect, but she didn’t respond. I didn’t bother to leave a comment. It was along the same lines (poor me because I have to work, but if I only made minimum wage, lost my job, or had four kids and no way to pay daycare then somebody would help me). I guess the grass is always greener, but we should be careful what we wish for.

In general, we need to learn to count our blessings better!

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3 Jaime February 2, 2011 at 6:36 pm

Wow, I was clueless about this credit! Thanks for the info!

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4 Heidi February 2, 2011 at 7:08 pm

You’re welcome :)

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5 Bargainist February 3, 2011 at 1:13 pm

It’s definitely very interesting – just goes to show that if you take the time to learn about what you’re paying, you may not pay less, but you may feel better about it.

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6 Heidi February 4, 2011 at 8:25 pm

So true!

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7 Mindy February 6, 2011 at 11:00 am

This is definitely a topic that people would argue over and over. It was very informative to me. Thank you!

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8 Heidi February 7, 2011 at 1:46 am

No problem :)

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9 Sherryl April 5, 2011 at 6:16 pm

The problem with the eitc is that it gives people back more than what they paid in taxes for instance several people I know personally paid about 800-1200 in taxes but got anywhere from 4000-6000 back as a refund, I agree with giving them all of what they paid in but not for one minute one single cent more than that, that is taking my taxes that I pay and work hard for and giving it to other people. NOT FAIR, NOT RIGHT, NOT HOW IT SHOULD BE

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10 Heidi April 5, 2011 at 8:16 pm

There is a group of people that will get back from the EITC more than they pay in. However, that group is smaller than people realize. If you make less than $16500 and have more than 3 children whom you provide full support for then you will get more EITC back than you put in. Many of the people who claim they are getting back more than they put in are not doing as “good” as they think. Blame it on our confusing tax code or our need to embellish stories. They are either under estimating how much they pay or over estimating how much they are getting back.

I am going to work your scenario backwards. A family that pays $800 in taxes is making $5228 a year. A family that pays $1200 in taxes is making $7843 a year (the math is in the post). I am going to assume that they have three or more children in order to give them the highest EITC possible.

Family A has three or more dependent children and makes $5228 a year. They pay $800 in taxes and get $2368 back for EITC.

Family B has three or more dependent children and makes $7843 a year. They pay $1200 in taxes and get $3521 back for EITC.

I thank the Lord that I do not personally know a family with three or more children living off of $369-$553 a month. I do not know what I would do if I knew several of them. Since I am not in that situation I can’t honestly say how I would feel when I heard they got back more than their $800-$1200 that they paid in. I can say that I feel awful for their situation and I hope they are getting help from more than just the EITC.

Once my tax dollars leave my hand I don’t really see them as mine anymore. I pay for schools I do not use, roads I may not travel, and the salaries of politicians who I don’t even like. If I do think of it as my money, I feel better about it going to those families than the politician.

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11 leiloni June 28, 2011 at 6:37 pm

Everyone who earns a income pays taxes, that is something to remember!

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12 Heidi June 29, 2011 at 11:09 pm

yep!

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13 Scot kroll July 24, 2011 at 1:34 pm

All the excuses crack me up.I don’t owe you money if your broke it called quit being so stupid,educate yourself,and get a job.oh my bad I forgot,that’s too hard.And it’s not just poor people who get the credit.many middle class families get it and live ghetto rich every year.and why pay in if you get it all back?waste of time paying someone to process that but that’s ok I’ll just pay for that too.

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14 Heidi July 26, 2011 at 1:37 am

I would love to see the “excuses” you speak of, excuses for what exactly? The article is on two myths about the EITC and doesn’t go into any excuses for anything. As the article stated, you do have to have a job to be eligible for the EITC. I do love the sentence “if your broke it called quit being so stupid, educate yourself.” If you feel the need to get upset over education then try to use a complete sentence and the proper spelling of “you’re”.

I completely agree that it would be easier to change the tax code so that those low income families don’t pay as much rather than pay in to get it all back. I do not for a second believe that our government would be able to figure that out!

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15 mollie November 12, 2011 at 9:59 am

really people..

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16 mollie November 12, 2011 at 10:02 am

I for one do not understand why any person deserves earned income tax credit..they only get it because they have children and a lower income then the next person. yes they do pay social security but don’t we all. I am so sorry but I can’t not feel sorry for the plight. If you choose to have kids that you can’t support not society’s problem. I why should one group of people be rewarded for working?

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17 Heidi November 13, 2011 at 3:13 pm

The earned income tax credit does not only go to people with children. People who do not have children do qualify for the earned income tax credit. However, the argument of “why should one group of people be rewarded for working” works if you take out the having children part. The EITC does “reward” people who work a low income job by allowing them to pay less tax. Where it gets tough to figure out the value of the credit is weeding though the people who would be on welfare without it. Personally I would rather reward a low income worker for working than encourage somebody to not work and collect welfare. There are lots of different opinions though and that is okay! Everybody should have an opinion, but I think it should be based in fact and there are a lot of myths out there (another myth must be that it only goes to people who have children).

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18 mollie November 20, 2011 at 10:12 am

yes Heidi you are correct, I realize that people without children get the credit too! I think I forgot this group because it is only up to $400.00. Whereas the other credit can be up to 5688..big difference. I still do not understand the purpose behind the credit.

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19 Heidi November 21, 2011 at 4:24 pm

No problem :) I think the difference is mainly because the number of deductions and where poverty level is. The number of deductions makes a huge difference on low income families (percentage wise) when it comes to taxes. It’s a small deduction on middle/upper, but a personal deduction may be a quarter to half of the total income for a low income person (so a single person making 20K would have a lot more taxable income than a couple with a child making 20K whereas the taxable income of the single person vs. the couple with a child when they are making 60K isn’t as huge of a difference percentage wise).

The purpose really is to encourage those lower income workers to keep at it and not go on welfare. You get welfare for not working, but you have to work to get this credit. On some of those border line incomes it may keep them in a job and I am all for it if it does! Honestly though, it is hard to say if it works. A lot of government programs are like that… you never really know!

There are positives and negatives on all programs, government and personal, and I love to debate them. To me the answer is somewhere in the middle and in a “we will never know” region. If it works I love it, if it doesn’t I don’t, but I never take a solid side because we will never know if it is doing what it is supposed to. The myths bother me though. There are so many real positive and negatives that it seems counter productive to me to be told lies (in spam emails, comments on sites, forums, and even mainstream media)! I want to debate with facts. The sentiment of “entitlement” also bothers me. When I read mean comments about how the “other guy” is spending money wrong and yet that person is mad about possibly losing their own entitlements in the same sentence (home deduction, social security, etc) I get frustrated. It is hilarious how many people out there think the entitlements they receive are good, but the ones they do not are bad. Just get rid of all of them (entitlements) and make it easy!

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20 mollie November 21, 2011 at 7:06 pm

I think I am aggravated with this credit because I see so many people abuse the credit. I know people who live together, but who are not married and they make 50,000 to 60,000 but still take the credit. When in reality they would not be entitled to the credit. There is a lot of abuse that goes along with this credit. Also, I think they should take the credit and put it in a college fund for the children. I know people who get this credit any January and are out of money the next month. I understand it is to encourage people to keep working, but shouldn’t getting a paycheck be enough incentive for people? I do feel as though this credit is a form of welfare.

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21 Greg Holbert August 9, 2013 at 10:47 am

Hello, Heidi!

Thank you for taking the time to debunk these myths that people have about the Earned Income Tax Credit.

It’s sad that people make these assumptions and assume that everyone who gets the credit are milking the system. In reality, the ones that fit the “myth” criteria are a VERY small percentage.

Keep up the great blogging and keep informing people about the financial world around them. It is definitely changing fast!
Greg Holbert recently posted..Busted tax lawyer offers free legal advice to cops to avoid rap: law-enforcement sourcesMy Profile

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22 mortgage loans June 24, 2014 at 10:45 pm

Hi Heidi,
Great info on “Myths about Earned Income Tax Credit”
Power to the little people power.
mortgage loans recently posted..States must adapt to thrive in the 'new economy'My Profile

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23 John Michael August 6, 2014 at 11:59 pm

The function of TAX is always critical and complicated. People will not agree undoubtedly, it’s debatable yet informative, supportable. Thanks.
John Michael recently posted..What Aspiring Stockbrokers Ought to Do for a Successful Career?My Profile

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