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.



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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