Why we must do away with the EIC!

[JohnH]

OK.

Yes, now I see the direct connection base don the original post, although I disagree with your assumptions about how the problem has evolved.

[taxxcpa]

The tax code should not be used as a welfare program for either the rich or the poor. It should be used strictly as a means to raise revenue to pay for the essential functions of the government. Private charities should be used for most welfare. If the government wants to help the poor, it would be more appropriate to provide day-care for their children and provide training to parents who have no income-earning skills.

Justifying the EIC because of equally bad benefits and tax breaks for the fat cats is not a valid justification.

Congress has "proof" that it causes people to work instead of accepting welfare? It causes some of them to fabricate income just to get the EIC. It causes others to work just enough to get the EIC--beyond that they are working for "free." When I was offered early retirement, I took it since continuing to work would be like working for a big pay cut since I would only earn the difference in excess of retirement benefits. It was the same kind of negative incentive to work as the EIC.

[Virtual Managed Solutions]

And it's crazy how the differences in amounts for EIC are so drastic. For example, if I were to qualify for EIC filing HOH - myself as dependent I'd get around $200 if that. If I were to have a kid I'd be looking at $2,700! It makes me wonder how they come up with those amounts and what is their basis to determine that?

[mcb39]

And it's crazy how the differences in amounts for EIC are so drastic. For example, if I were to qualify for EIC filing HOH - myself as dependent I'd get around $200 if that. If I were to have a kid I'd be looking at $2,700! It makes me wonder how they come up with those amounts and what is their basis to determine that?

You cannot file HOH unless you have a qualifying child or qualifying relative living with you for more than half of the year.

[Virtual Managed Solutions]

I just meant filing single / myself. No other dependents. Wasn't quite sure if HOH was the right lingo or not. Thanks for the info mcb39!

[joanmcq]

Ok, tax history lesson: the EIC was created to ease the regressive nature of payroll taxes for the working poor. For a single person that qualifies, it pretty much does that. For example try a single SE worker making 5K a year. The EIC will take care of their SE tax, bringing their tax bill to zero.

Then someone got the idea of giving bigger refunds to people with kids and it became a form of welfare. For or against? I've done friends' taxes where single mom making 20-30k gets some help, and one of my tenant making less got a bit more. Heck, when I was back in school, I made so little money I even got a little bit one year (no kids and the limit was around 9k so you know I wasn't living on much). But in my job doing audits I see a lot of fraud; borrowing kids of relatives etc. Or someone making a huge amount of money that used bonus depreciation and Sec 179 on a luxury SUV purchase to legally get EIC and add'l child credit (it was a Mercedes by the way) So I'm a bit torn...I can see where it is helping but that last case made me sick to my stomach.

[Tax Prep by Deb]

Exactly!

Deb!

[mcb39]

Exactly!

Deb!

But, therin lies our "due diligence"!

[KEYWEST_RICKS]

>>Give it to everyone if that's the purpose<<

Okay, that was last year's stimulus.

I really don't understand the criticism of EIC recipients, especially from tax professionals. If you don't enjoy working with the tax code, why are you even in this business? Criticize Congress if you disagree with the widespread policy of using the tax code for economic incentives, but there is NOTHING wrong with individuals filing for benefits they are legally entitled to. IRC Section 32 has no greater moral significance than Section 179 or any other credit or deduction that Congress has authorized.

EIC is not tax code. If it walks like a duck and quacks like a duck it is a duck...EIC is welfare not tax code. Section 179 is a deduction for money spent. EIC is payment to people as welfare. I see a big difference. most every other credit requires someone to spend money on something to recieve the tax benefit.

[Janitor Bob]

EIC is not tax code. If it walks like a duck and quacks like a duck it is a duck...EIC is welfare not tax code. Section 179 is a deduction for money spent. EIC is payment to people as welfare. I see a big difference. most every other credit requires someone to spend money on something to recieve the tax benefit.

My next door neighbor (single mom) has mastered the maximization of her EIC.....She has realized exactly what income she can make each year that maximizes her refund with EIC....at that point she quits every year (mostly restaurants and temp jobs).....When an able-bodied person quits working just to get EIC...That is abuse!

[Virtual Managed Solutions]

When an able-bodied person quits working just to get EIC...That is abuse!

That is nuts.

[kcjenkins]

Well, as I see it, the real dishonesty is that the EIC was started to offset the payroll tax poor families pay, and it certainly does that. But the pols, whenever they want to justify any tax break aimed at the non-taxpaying voters, still claim "well, they do pay taxes, they pay payroll taxes".

Well, no, if they get EIC, they are NOT REALLY paying many payroll taxes, are they? A couple making $24K a year with two kids would pay $1836 in payroll tax, but get $3319 in EIC. That means they are getting all their payroll tax back, PLUS $1483 in welfare. A single person, however, would not get any EIC at that level. However, a single person earning $24K should not be considered poor. And a single person earning $10K would pay only $765 in payroll tax, and the EIC would repay $196 of that. And one making only $8K would pay $612 in payroll tax, and get EIC of $349. And if he made only $5K, he'd pay $383 in payroll tax, and get EIC of $384. Now, all of us have our own definition of 'poor', and it clearly differs depending on where you live. But it clearly does mean that the EIC makes the discussion of what is 'fair' hard to apply across the board, IMHO.

[joanmcq]

"When an able-bodied person quits working just to get EIC...That is abuse!"

Exactly! The EIC was supposed to encourage work & help with payroll tax not encourage someone not to work.

[Julie]

Advance EIC is often a mistake. By the end of the year, that person may no longer qualify for EIC, and they definitely won't have the money to pay it back. And it's so rare that I miss it occasionally, too.

As for needing the money month by month, sure they could use it. But they'll never have enough money to get that old car repaired without getting a single large check. Sometimes they already have the car in the shop, and can't get it out until they get their tax refund(and you wonder why they like RALs?). An extra $167 a month will disappear into groceries and day-to-day necessities, but a single large check allows them to buy a used car or fix the old one, with maybe a bit left over for the kids' shoes.

A long time ago, working at HRB, I did see a fair amount of EIC fraud...but it was almost always caught quickly, since the legitimate parent of the child usually filed at about the same time. When we could identify the fraud, we'd send them away, but they'd go on to another office where they weren't known yet. In general, they always want a preparer who's never seen them before.

In private practice, I don't see it at all. I still have EIC clients, but generally I know them well, since they've been with me since my Block days.

Julie

I've seen it once.

And totally missed it (initially). Was on auto-pilot and my mind just skipped that box. Caught it on the second go around, but it was cool since return was a freebie for a friend of a friend and she understood.

I like the idea of advance EIC. Then again if I could do it without paying interest or penalties I would wait until the last moment I possibly could to pay any taxes. I always tell people including customers that *my* goal is to owe $1000 each year in my "You need to adjust your withholding so you don't get another $12k refund" speech. Sometimes I convince them to adjust withholding to a refund of "only" a few thousand. I guess it's easier to save money if you're forced to through withholding, even if you're giving up earning interest on it.

[Gail in Virginia]

Julie, you make some good points. I have no problem with EIC, and even those who play the system by working only enough to qualify for the maximum are going to play the system some way. If it wasn't EIC, it would be welfare or food stamps themselves. I have heard from car dealers about people buying cars with their refund checks, so I am sure that is how some EIC money is spent. And it is very hard for me to save money sometimes, so I can imagine if I were just barely scraping by how difficult it would be. Our tax system has always been designed to take more money from the wealthy (at least in theory) so that it can be given to the poor (although not always as directly as with EIC).

But this certainly seems to be a hot button with some preparers - both for and against. I wish I knew all the answers. :dunno:

[kcjenkins]

Only God knows all the answers. And I bet He does not even try to keep up with our tax code and regs and rulings and court decisions.........LOL.

[joelgilb]

You might recall a recent solution to this problem suggested by a State Senator in LA. He wanted to pay all the poor to get sterilized!

Now there is a novel solution to the problem.

Sounds like something Judge Roy Bean would have done.

[David1980]

You might recall a recent solution to this problem suggested by a State Senator in LA. He wanted to pay all the poor to get sterilized!

Now there is a novel solution to the problem.

Sounds like something Judge Roy Bean would have done.

Aside from the ethical questions that's not a bad resolution. Stats continue to show that children of poor parents frequently grow up to be poor themself. It makes sense too, less healthy food, less prestigious schools, less family connections. If you eliminated the kids you would eliminate future generations of poor people and actually reduce the poverty percentage in the country.

But the ethics...

[Cathy]

I normally have 2 types of clients who receive and EIC:

1. Young couples having been married a year or so and have a new baby. They can't believe me when I tell them they are getting more

taxes back than they paid in. The next year they come in and IF they qualify at all for the EIC, it is a much lesser amount. Each year

the couple(s)' income increases to the point that they never see the earned income credit again....and it doesn't take years and years

for them to increase their income beyond EIC limits. I am always happy for these type of clients as I really feel that was what EIC was

designed to do many, many years ago before it became a political giveaway.

OR

2. Those that come in EACH and EVERY year earning the minimum amount to receive the largest EIC possible. Their income rarely ever

increases and they seem to care less. The jobs are there for people who really want to work. When raising our kids, if you didn't make

enough $ with your job...you went and got a second job...or even a third job...whatever it took to make ends meet. We had NO EIC,

NO child tax credits, NO education credits, etc...and we survived. It's all about survival skills....these type of clients listed here don't

have them and never will.

BUT JUST WAIT.....we haven't seen anything yet....the 2009 EIC maximum amounts are going to go through the roof!

[Virtual Managed Solutions]

@kcjenkins - God might not try to keep up with the ever changing tax code, regs, rulings and court decisions, but what if someone else did? The IRS website provides everything at your fingertips, but often times, very hard to find. It's clutter and no easy way to navigate. Other times you have to go elsewhere to find information. What if there was a site available to everyone that archived EVERYTHING tax?

@David1980 - Statistics are correct. There are always the untypical turnouts where everything defies reason, but especially the rural area I'm from you see this all the time. It's something that's very real, and for the most part, things do not change. In all honestly, of all the friends I had through school / life with poor to working class parents, who went without at times and only got the bare minimum at other times, myself included, I can say about 20% of that group actually turned our lives around, went to college, didn't have kids right out of high school, left the area (eventually to come back), some even have their own businesses and the list could go on.

Here is a real statistic to wrap your heads around. My High School class had 23 students - Only 20 of us actually graduated - Only 4, including me, went to college and another 2 joined some part of the military. Of that 20, most are still living in the area with families of at least 1 kid up to 3, on some sort of government aid, most not working and if they do, it's like that woman Janitor Bob mentioned yesterday. Would quit her job as soon as she hit the EIC max.

@Cathy - It's great that some families do take advantage of EIC and use it wisely instead of taking advantage of the fact it's there to plunder. I would have loved to see their surprised expressions. Just knowing they were excited would have made my day. Do you have a link or any more info on the 2009 EIC max? IRS Pub?

[jainen]

>>Would quit her job as soon as she hit the EIC max<<

EIC is highest with income a bit under $16,000. In my observation it is common for workers drawing early Social Security to quit work at about the same level, to avoid cutting into THEIR government checks. How do you feel about that?

*************

>>Do you have a link or any more info on the 2009 EIC max?<<

2009 limits are published in Revenue Procedure 2008-66 at http://www.irs.gov/pub/irs-drop/rp-08-66.pdf.

[mcb39]

>>Would quit her job as soon as she hit the EIC max<<

EIC is highest with income a bit under $16,000. In my observation it is common for workers drawing early Social Security to quit work at about the same level, to avoid cutting into THEIR government checks. How do you feel about that?

*************

>>Do you have a link or any more info on the 2009 EIC max?<<

2009 limits are published in Revenue Procedure 2008-66 at http://www.irs.gov/pub/irs-drop/rp-08-66.pdf.

Isn't it everyone's goal to pay as little taxes as possible? Isn't that why we are here, to help interpret the tax code for our clients so that they pay only what they OWE? Isn't that why we do amendments year after year? I have no issues with legally paying the least tax possible as nearly all of my clients are low to middle class working folk.

Most of us know of families that fall into the two classes that Cathy cites. And, yes, we have to applaud the first example. My husband worked 3 jobs so that I could stay home and raise our boys. We would have welcomed a little extra help. As for the second group, as long as tax code is what it is, they are just as entitled as anyone to exercise their rights. It is not for us to judge. IMO

[Virtual Managed Solutions]

As long as tax code is what it is, they are just as entitled as anyone to exercise their rights. It is not for us to judge.

You're completely right - It is what it is. Just wish we lived in a world where everyone was honest.

[mcb39]

You're completely right - It is what it is. Just wish we lived in a world where everyone was honest.

Sometimes they think they know the law better than we do and sometimes they get surprised. Had a client drop off his info yesterday. This year he has almost the same amount of income as last year; right at $16,000. The big difference is that this year nearly 2/3 of his income is Unemployment. Last year he received $4593 EIC for 3 children. This year he will be shocked to find that it will drop to $2030 because Unemployment is NOT considered earned income. Nor will he get the $1200 stimulus check that he got last year. On the other hand, the mother of the children worked this year so she can file and receive $600 in stimulus; which they did not know. So, some people are trying.......just seems at times like they aren't trying hard enough. But, I feel that as long as we really practice Due Diligence, it is not up to us to decide who is honest and who isn't. If in doubt, we certainly have the option to send them elsewhere.

[jainen]

>>right at $16,000<<

Millions of people earn "right at $16,000," since that is full-time work at eight bucks an hour, a pretty standard wage floor for good but common skills in many fields (including tax preparation). And those jobs don't pay benefits either, for raising young children during the principle child-bearing years. You don't only see them once a year, but every day in clerical, industrial and service positions all around you. The trade schools and community colleges are packed with them trying to get a credential to qualify for take home pay of $1500 a month, the price of a two-bedroom apartment in the city. That's as good as it gets for a LOT of people who are trying to even hang onto that job. MCB's client didn't quit or get fired--UIB is for people who lose their job through no fault of their own.

How can you say "they aren't trying hard enough"? Have a heart, folks.