When filing tax returns this season, low- to middle-income families may have money coming back to them, thanks to the earned income tax credit.
The earned income tax credit, or EITC, is refundable, which means eligible workers receive a refund of the difference if the value of the credit is larger than the federal taxes they owe.
Families with children and incomes below about $46,600 to $63,400 in 2023 may qualify for the EITC this tax season, based on their marital status and number of children in their households.
But the EITC — which provides around $60 billion annually to workers and their families — could be reformed to be more efficient, experts said at a panel hosted by the Bipartisan Policy Center on Friday.
“This is like a no brainer, lift up society,” JPMorgan Chase CEO Jamie Dimon said. “And I would pay for it by taxing the wealthy a little bit more.”
Increasing spending on the earned income tax credit would give more money to households and communities, and therefore providing more money for food and children’s education, he said.
“It brings dignity,” Dimon said. “That money will be spent in local communities.”
One tax break that might be eliminated to help boost the EITC is the state and local tax deduction, which provides a federal tax deduction of up to $10,000 for certain taxes paid to state and local governments, suggested Paul Ryan, former Speaker of the House and Republican representative for Wisconsin.
Dimon agreed.
“There are so many tax breaks out there that shouldn’t be there,” Dimon said.
Dimon has spoken out on policy issues before, including recent testimony before Congress where he said rules for Supplemental Security Income benefits should be updated.
How the earned income tax credit may be improved
The EITC was first enacted in 1975 to help with stagflation, a combination of slow economic growth and high inflation, that was then affecting the U.S. economy. Today, in addition to the federal tax break, 31 states and Washington, D.C. offer a state version of the earned income tax credit to further supplement wages, according to the Bipartisan Policy Center.
But there are ways the credit could be more effective, such as by expanding eligibility for childless workers, a change that was temporarily put in place in 2021 in response to the Covid-19 pandemic. The credit could also be adjusted so both younger and older workers may qualify.
Approximately 1 in 5 workers who are eligible for the federal earned income tax credit fail to claim it, according to the Bipartisan Policy Center.
In addition, there is also a high rate of improper payments, due to the credit’s complex eligibility rules.
Much of those problems can be solved by improving the technology used to administer the credit, Ryan suggested.
Having a more efficient system could make it possible to have it so the credit shows up in workers’ paychecks, rather than as one lump sum when they file their taxes, he said.
“I would rather have it embedded in the paycheck itself, so that each pay period you have that higher pay, so that you can budget more accordingly,” Ryan said.
Improved technology could also help get the earned income tax credit to eligible workers who are not currently receiving it, while also make it easier to change the terms of eligibility.
“We have a lot of expiring provisions coming in tax law in at the end in the next session of Congress,” Ryan said. “There is where you have churn of tax policy where you probably have an opportunity to make some of these expansions.”