March 5, 2014 11:27 am

Proposal to Expand the Earned Income Credit

The president’s budget proposal for the government’s 2015 fiscal year contains a measure to expand the earned income tax credit (EITC). This credit is fully refundable, so low- and moderate-income workers can receive the benefit of the credit even if it exceeds their taxes. The proposal would greatly increase the EITC available to workers who do not have a qualifying child. The cost of the proposed expansion of the EITC: $60 billion.

The expansion of the EITC would be funded by closing perceived loopholes on wealthy taxpayers. Suggestions: (1) changing the tax treatment of carried interest (from capital gains under current law to ordinary income) for private equity and venture capital executives; and (2) taxing all of S corporation shareholder-employee’s income for FICA tax purposes rather than just amounts designated as salary (referred to as the “Newt Gingrich/John Edwards loophole”).

These are only part of the president’s budget requests. It remains for Congress to enact legislation and appropriate funds for the government’s 2015 fiscal year.

 

Source: http://www.reuters.com/article/2014/03/04/us-usa-fiscal-tax-idUSBREA2303520140304

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Tax Glossary

Defined contribution plan

A retirement plan that pays benefits based on contributions to individual accounts, plus accumulated earnings. Contributions are generally based on a percentage of salary or earned income.

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