Under the U.S. tax code, there are several refundable tax credits, including the Child Tax Credit and the Earned Income Tax Credit. A tax credit is not the same as a deduction. A deduction allows you to reduce your taxable income so, for example, a $1,000 deduction if you have a $20,000 income would mean you were taxed only on $19,000 in income instead of $20,000. A tax credit reduces your tax bill so if you owed $1000 in taxes and got a $500 tax credit, you'd only owe $500.
Some tax credits are non-refundable, which means you lose the credit if you didn't pay at least that much in taxes. If you had a $1,000 credit but only owed $200 in taxes for the year, your credit would wipe out your tax bill but you wouldn't get back the additional $800. Other credits, however, are refundable – so you can get back the credit even if the government is sending you more money than you sent in to the IRS.
The refundable tax credits in the U.S. tax code largely help the working poor and help middle class taxpayers with limited incomes. However, President Trump's recent budget proposal would make claiming some refundable credits more difficult for certain taxpayers by tightening the requirements for claiming the credits.
A Maryland tax lawyer provides help to taxpayers who need to minimize their tax bills and who want to ensure they are taking full advantage of tax credits they are entitled to receive. If you claim refundable credits – or if you need help with any credits or deductions – it is a good idea to talk with an attorney who can provide you with assistance.
How Would Trump's Budget Change the Rules for Refundable Tax Credits?
Trump's budget proposal appears to be aimed at making it more difficult for undocumented immigrants to claim refundable tax credits. The budget proposal does this by requiring that taxpayers who claim the Earned Income Tax Credit or the Child Tax Credit provide Social Security numbers. Social Security numbers would need to be provided for all taxpayers, their spouses, and all qualifying children.
Currently, the law allows undocumented immigrants – who by definition do not have Social Security numbers – to use Individual Taxpayer Identification Numbers (TIN numbers) to file their tax returns and claim refundable credits. The Treasury Inspector General for Tax Administration noted in a report in late 2014 that as many as 25.2 to 30.5 percent of payments made under the Additional Child Tax credit were improper payments.
Under Trump's proposal, the mandate that Social Security numbers be included to claim refundable credits would ensure that refundable credits are only provided to taxpayers who are legally authorized to work within the United States.
This proposed change is just one of many ways in which President Trump wants to modify tax rules. US International Tax Advisors can assist all tax filers in understanding any changes to the law that affect their tax obligations or their eligibility for tax credits. To find out more about how an attorney can help, give us a call today.
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