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What Is The Earned Income Tax Credit?

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Meet Julie. She is a single mother with two young boys. Julie has an entry-level job at her local grocery store earning $20,000 a year. She qualifies for something called the Earned Income Tax Credit or as some call it, the Working Americans Credit.

But what is the Working Americans Credit?

It is a refundable tax credit for low-income working individuals and couples, especially those with children.

Think of it this way: Because Julie works and qualifies for the Working Americans Credit, the IRS sends her a check in the mail every year. It directly supplements Julie’s income through the tax code, giving her more money to save and spend.

The Working Americans Credit operates on a sliding scale, meaning that hard working American parents with more children to support—but less money to support them—qualify for a higher Working Americans Credit.

For example, Julie—who has two children—receives more money than someone earning a higher income with no children.

As Julie earns more, and can more easily provide for her family, her tax credit is slowly reduced and is redirected to those who require the most help. It protects tax payers, promotes work, and provides benefits to those who need and deserve them.

The Working Americans Credit reduces poverty while rewarding work, providing employees like Julie an opportunity to start and build stable, long-term careers.

How do we know? Because the Working Americans Credit is already working for millions of people. In 2013, 28 million Americans were helped by receiving tax credits. This lifted 6.2 million people out of poverty, including 3.3 million children.

The Working Americans Credit is more effective at helping workers than other government policies, such as raising the minimum wage for entry-level work, because it rewards workers with none of the unintended consequences of a mandated wage hike—like job loss and higher prices. It is also much more targeted than other solutions because the Working Americans Credit is aimed at the true working poor, not teenagers working after-school jobs for example.

So when you hear people talk about helping the working poor, remember that the Working Americans Credit is one government policy that has proven to work. Just ask Julie.