It is the duty of taxpayers to pay taxes on time. According to an estimate approximately 44% of people do not pay income taxes. This is a huge number, it is important that people are encouraged to pay federal income tax. Even if an individual is note paying income tax, he is still paying all other taxes such as; sales taxes, excise taxes, and property taxes.
Most of the non-payer of taxes is working men and women thus they pay payroll taxes. According to the tax record about 60 percent of those who don’t pay income tax will owe payroll taxes. Only about 9 percent of households have their payroll tax fully offset by those refundable credits.
Purpose of Earned Income Tax Credit (EITC)
Earned Income Tax Credit (EITC) was created in 1975; one of the reasons of starting the (EITC) was to offset payroll taxes. It is no surprise that refundable income tax credits fully cover payroll taxes for some households.
The magnitude to EITC has increased much faster than payroll taxes due to which Congress created two more refundable credits;
- American Opportunity tax credit
These credits have made many households non-payers of income tax and payroll tax. Refundable credits make it possible for some low-income households with workers to avoid paying income and payroll taxes. Even so, nearly three-quarters of Americans will end up paying at least one of those taxes this year.
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