At tax time, the EITC is win-win for workers and employers

Originally published February 2010
ASE's Everything People
http://www.aseonline.org/images/everythingpeopleFebruary10.pdf

By Dona Ponepinto, Guest Contributor

Tax season can be a stressful time for everyone. From understanding all of the forms, to gathering all the necessary information and worrying over what you
might owe, it is a headache few enjoy.

Yet, for many Michigan workers, tax time also means an opportunity to significantly increase their household income, and employers can help them take advantage of it without incurring any additional employment costs. For employers and their employees, it is a clear, straightforward Win-Win.

At United Way for Southeastern Michigan, we believe that all families should have the tools and resources to become financially stable. That means the ability to make a livable income, to save, and to build assets. Every day, we're working with key partners in the government, nonprofit and corporate arenas to make this a reality.

Interestingly, a key first step to financial stability for many families lies in their annual income tax return. Tax credits like the Earned Income Tax Credit (EITC) can add thousands of dollars to a household's income. The EITC is a refundable tax credit offered at both the state and federal levels for working individuals and families. The credit allows taxpayers to reduce the amount of taxes they owe and, in most cases, provide a refund. Either way, it translates into more disposable income in the taxpayer's pocket.

This year's federal tax credit ranges between $450 and $5,650, depending on family size and household income. In 2007, the average federal tax credit for Michigan residents was $1,975. The Michigan EITC, a separate credit from the federal EITC, provides an additional tax credit of 20% of the taxpayer's federal credit.

The additional money workers receive is often used to pay down debt, meet basic needs, or save for the future. It is a fact that the EITC lifts more families out of poverty than any other federal aid program.

Not only does the EITC help individuals and families, but its benefits extend to employers and the community as a whole. For employers, the EITC presents tremendous opportunities. It offers an incentive to work and provides a chance for individuals to significantly increase their disposable income without having to receive an increase in pay. In a difficult economy where pay raises are no longer the norm, this is critical to helping families continue to meet their needs.

At a community level, the value is seen in the millions of dollars pumped into the local economy. The economic impact on neighborhoods and cities is felt as refund recipients pay bills, invest in their homes and neighborhoods, and purchase goods and services.

Unfortunately, there are still millions of EITC dollars left unclaimed each year. Estimates show that approximately 25% of eligible taxpayers do not claim the EITC because they do not know they are eligible or they do not understand its benefits. That translates to approximately $220 million that is left unclaimed across the state of Michigan.

Our state legislators are making strides to increase awareness and the amount of tax credits workers receive. HB 5296, a bill introduced in the Michigan House of Representatives late last year, would require employers with five or more paid employees to provide information about the EITC to their entire staff. The bill would also provide tools to help organizations effectively communicate to their employees about the EITC and its benefits. It has passed in the House Labor Committee, and is currently making its way through the House. If passed, this bill would go a long way in educating workers about this important income booster.