JOHN B. KENNEDY         TAX CONSULTANT          CORPORATE FINANCE 

(816) 942-6190​​​
312 E. Woodbridge Lane
Kansas City, Mo.  64145

​EMAIL:  jbkennedy@sbcglobal.net       WEBSITE:    jbkennedytaxconsultant.com
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THE EARNED INCOME CREDIT

The purpose of this article is to illustrate an aspect of the tax code which is known by very few taxpayers, the Earned Income Credit.  It can best be described as welfare for the working poor.  

The following information is that of a hypothetical taxpayer, Mary Smyth.  She is the single mother of two small children and works at a McDonalds near her home.  Her hourly wage is $8.65 per hour and works 40 hours per week, making her annual income $18,000.  Mary has no income tax withheld from her paycheck other than the mandatory social security and medicare. 

Upon preparing her 2014 federal tax return, what will be the result?

Because of the earned income credit (EIC) and child credits, Mary will receive a refund of $7040.  Even though Mary has no income tax withheld from her check, she will receive the refund. 

The earned income credit is calculated based on income, marital status, and the number of dependent children.  Married taxpayers can also receive the credit, however it is calculated from a different chart. 

HISTORY OF THE CREDIT – The earned income credit is not a new concept.  It grew out of the welfare reform efforts of the 1970’s.  Originally, it was intended to offset the cost of Social Security taxes withheld from the paychecks of low income taxpayers.  Over the next 40 years, the amounts of the credit were expanded several times until the above example became reality.  It has become one of the principal anti poverty programs in the federal budget. 

ABUSE OF THE CREDIT – One of the problems of illegal immigration is that workers are paid “cash under the table” so there is no tax paid on the income earned.

This, in fact, is not the problem with the EIC.
 
The problem is that illegal aliens come into America, obtain social security numbers for children who may or may not be US citizens and file tax returns which claim the EIC.  Thus, the illegal immigrants not only earn income which is not taxable, but after claiming the EIC, they receive a healthy check from the US Treasury.  IRS does not have the capability of controlling this abuse.