Editor’s note: This post was authored by Lauren Pescatore, Debbie Stein and Amy Greene of TaxCreditsForWorkingFamilies.org, a website dedicated to educating and informing advocates and public officials about the importance of the state and federal tax credits to working families. Their site includes a 50 State Resource Map that serves as a quick reference guide as to the status of tax credits across the country.
Because so many low- and middle-income families live paycheck to paycheck, tax refunds are prime opportunities—sometimes the only opportunity—for families to save. Refundable tax credits such as the Earned Income Tax Credit (EITC) and the Child Tax Credit not only offset some or all of these working families’ federal income taxes; they often provide additional income to help offset other types of taxes. Because they are refundable, if the size of a family’s credit exceeds the amount of income tax it owes, the family receives the difference in the form of a refund check. The Child and Dependent Care Credit, although not currently refundable, can also provide significant tax savings for working parents with child care expenses. These credits provide many working families with a lump sum refund that they can save or invest.