PROVIDENCE, RI – In an effort to boost the economy and help Rhode Islanders keep more of their hard earned money, U.S. Senator Jack Reed is calling for passage of the Working Families Tax Relief Act.  Reed, along with U.S. Senator Sherrod Brown (D-OH) and several of their colleagues, introduced the Working Families Tax Relief Act to provide tax credits to lower-income workers by expanding eligibility of the Earned Income Tax Credit (EITC) and enhancing the Child Tax Credit (CTC). 

“We need a multi-faceted approach to improving our economy and increasing living standards for working families. Raising the minimum wage and making the expanded and improved Earned Income Tax Credit permanent are two effective ways to help low wage earners build a more stable and secure financial future,” said Reed, who is also a cosponsor of the Fair Minimum Wage Act, which would incrementally boost the federal minimum wage with three annual 95-cent increases until it reached a rate of $10.10 an hour by 2016, and then index it to inflation to better keep low wage workers in step with the economy.

The expanded and improved Earned Income Tax Credit is currently only extended to 2017, but this bill seeks to make it permanent while also increasing the amount low and moderate income taxpayers could receive in refunds. The legislation would also make it easier for single taxpayers without dependent children to qualify for the tax credit.

“The Working Families Tax Relief Act will help keep tax bills lower for Rhode Islanders who qualify while also making it easier for full-time workers to become eligible for the maximum credit,” said Reed.

In 2012, about 79,000 Rhode Island families received approximately $171 million in Earned Income Tax Credits, with an average amount of $2,147 per family.

When Congress passed the American Taxpayer Relief Act of 2012 it permanently extended several aspects of the Bush tax cuts that benefit the wealthiest households, but included a 5 year sunset on key improvements to the EITC and CTC.  Letting these EITC and CTC provisions expire could cause more than 13 million working households to each pay an average of $843 more in taxes.

To help fix this, the Working Families Tax Relief Act (S. 836) would:

  • Strengthen the Earned Income Tax Credit: The legislation would expand access to the credit, allowing a full time worker receiving the minimum credit to be eligible for the maximum EITC. The bill will also make the credit available to workers without children.
  • Change the Eligibility Age: Under current law only individuals older than 25 and younger than 65 are eligible for the childless component of the EITC. The legislation would make individuals older than 21 and younger than 65 eligible.
  • Index the Child Tax Credit for Inflation: In order to maintain the value and access of the CTC, the bill would index it for inflation. 
  • Simplify the Earned Income Tax Credit: The legislation would eliminate a major source of inadvertent fraud by simplifying the rules for claiming the EITC. This bill makes it simple for parents to understand who claims a child and for divorced parents to properly file. The bill also simplifies rules that penalize working families for saving and investing their savings.
  • Make permanent enhancements to the Earned Income Tax Credit: Working families with two or more children qualify for an EITC equal to 40 percent of the family’s first $12,570 of income. The Recovery Act increased the EITC to 45 percent for families with three or more children, and the bipartisan agreement to avert the fiscal cliff extended these reforms for five additional years, through 2017. The EITC has a long history of bipartisan support dating back to its creation in 1975 and its expansion in the bipartisan 1986 Tax Reform Act. According to recent estimates, allowing the expanded EITC to expire would increase taxes on 6.5 million families with income below $50,000.
  • Make permanent enhancements to the Child Tax Credit: The CTC allows a family to reduce federal income tax liability by up to $1,000 per child. CTC became public law in 1997 through a bipartisan agreement. The 2001 “Bush” Tax Cuts began a phased in increase of the credit from $500 - $1,000 and an increase in the refundable portion of the bill. The Recovery Act reduced the salary threshold for claiming the refundable portion of the credit to income above $3,000. An analysis of Census data showed that these provisions lifted 900,000 people above the poverty line in 2011. According to recent estimates, letting the expanded CTC expire would increase taxes on 12 million families who would see the size of their CTC credit shrink, and five million families would no longer be eligible for the credit at all. 

The legislation has 32 cosponsors in the U.S. Senate and is currently pending before the Finance Committee.  

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