Advancing Tax Systems That Work for All
Millions of people are working hard and still struggle to make ends meet. Working families living in poverty need immediate relief and ongoing support. The tax code, tax credits and our tax systems provide important opportunities to equitably help families and communities build economic security.
The tax code is one of the largest tools that the federal, state, and municipal governments have to provide families with economic security and wealth-building opportunities. Yet the tax code systematically disadvantages women, people of color, immigrants and low-income families. Homeowners with home mortgages get tax breaks, but we know that people of color have been systematically left out of homeownership opportunities; high-income earners with retirement and other savings get tax breaks, but we know that women and people of color are more likely to be in jobs that do not pay enough or do not offer retirement savings opportunities. Further, immigrant workers and families are increasingly excluded—either explicitly or implicitly—from these initiatives. These, and other tax code priorities, perpetuate the racial and gender economic gaps that exist in the U.S.
Learn more about equity and the tax code here.
The Earned Income Tax Credit (EITC) is a federal tax credit for people who work and have low to moderate earned incomes. The EITC reduces the amount of federal taxes owed and may also provide a refund.
Because the EITC puts money back into the pockets of low-income families, the EITC has been called one of the largest and most effective poverty-reduction programs in the nation. Each year, the federal EITC lifts millions of people out of poverty. In 2018, the EITC lifted about 5.6 million people out of poverty, including about 3 million children.
Which states have an EITC?
Read about the basics of the EITC.
The federal Child Tax Credit (CTC) helps families manage the cost of raising children. Under current law the credit is worth up to $2,000 per eligible child (under age 17 at the end of the tax year). For 2021 only, the American Rescue Plan Act increased the maximum credit amount to $3,600 for children under age 6 and $3,000 for children aged 6-17, made the credit fully available to children and families with low incomes, included 17-year-olds for the first time, and issued half of the credit through advance monthly payments.
Read more about the CTC.
What states have a CTC?
Read about the impact of state CTCs.
The Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC) put money back into the pockets of families with low income, which helps them buy groceries, pay utility bills, and buy school supplies today—and helps them create opportunities for the next generation by accessing additional education and training, securing reliable transportation, and saving for their children’s education.
Predatory Practices are any practices or services that benefits a business or other entity at the expense of a poor or less powerful person. Predatory Practices often take advantage of poor people and perpetuate cycles of poverty.
Read more about predatory practices here.
Immigrants are paying billions of dollars each year in taxes. In spite of their undocumented status, these immigrants—and their family members—are adding value to the U.S. economy, not only as taxpayers, but as workers, consumers, and entrepreneurs as well.
Immigrants in the U.S. contributed more than $330.7 billion in federal income taxes in 2019, and over $492 billion dollars in total taxes (including state, municipal, and sales taxes). The Tax Foundation estimates that American and immigrant taxpayers paid $1.6 trillion in individual income taxes in 2019. In this context, it’s important to note that immigrants made up only 13.5% of the U.S. population in 2020, meaning that immigrants make an outsized contribution to the U.S. revenue system.
The Individual Taxpayer Identification Number (ITIN) was created by the IRS in July 1996 to allow foreign nationals and other individuals who are not eligible for a Social Security Number to comply with U.S. tax laws and pay taxes. According to the IRS, in 2015, 4.4 million ITIN filers paid over $5.5 billion in payroll and Medicare taxes and $23.6 billion in total taxes.
- ITIN holders are not eligible for all of the tax benefits and public benefits that U.S. citizens and other taxpayers can receive. For example, an ITIN holder is not eligible for Social Security benefits or the Earned Income Tax Credit (EITC).
- Some ITIN holders are eligible for the Child Tax Credit (CTC). According to federal legislation passed in March 2021, the CTC may be worth up to $3,600 for each child under 6 and up to $3,000 for each child age 6 to 17, depending upon the applicant’s income. Because ITIN holders are eligible for the CTC, the IRS estimated in 2014 that up to 4 million U.S.-citizen children of ITIN holders benefit from the tax credit. If a child does not have a SSN, he or she is not eligible for the tax credit.
See this map of states that allow ITIN holders to receive state EITC.