Purpose of the tax credit
Topic 600 of the IRS tax code defines the tax credit. The definition of a tax credit is an item that minimizes your tax liability. Tax credits can be legislated by Congress for just about any rationale. However, the purpose of the tax credit is to compensate for certain activities by adding credits to tax liability therefore reducing it. Tax credits usually have some kind of social impact and grant tax relief to certain situations. Consequently, the initial purpose of the tax credit is still relevant today. For example, the Tax Reduction Act of 1975 allowed taxpayers a 10 percent rebate on their 1974 tax liability. It was also implemented as a temporary tax credit for each taxpayer and dependent. Consequently, The Earned income tax credit (EITC) began in 1975 as a reserved program intended at offsetting the Social Security payroll tax for low-income families with children. Its main purpose was to grant some reprieve to low income workers and combat poverty by granting a credit to low income workers (Rubenstein, 2009). It has a collective advantage of encouraging workers to work at a minimum wage jobs by making more of their earnings available to them. The Earned Income Tax Credit (EITC), a federal program that provided 22 million American families with children a total of $34 billion in cash assistance in 2003, accomplishes its stated goals (Francis, 2012). It provided low-income worker with extra income through tax refunds. This largest federal cash transfer program successfully met its goal of encouraging low-income parents to go to work by, in effect, lowering their tax rate and providing a financial bonus for that work effort. In addition, it has been effective in encouraging single parents to obtain employment. Other forms of tax credits can be used to encourage activities that benefit society as a whole. Consequently, American Recovery and Reinvestment Act (ARRA) added a temporary increase in the Earned Income Tax Credit. (http://www.recovery.gov/Pages/default.aspx).
Another example of a credit that achieved it purpose is the American Opportunity Tax Credit (AOTC). This credit was part of the American Recovery and Reinvestment Act, which was signed into law in February 2009.The stated goal of the credit was to, "cover two-thirds the cost of tuition at the average public college or university and make community college tuition completely free for most students( http://en.wikipedia.org/wiki/American_Opportunity_Tax_Credit). This tax credit gives students already enrolled more interest to stay in school longer. Although the credit will not pay for a full education, it does give struggling students a little bit of much needed support.
Through the provide examples, above the purpose of the tax credit is still relevant today.
Pros and Cons of the tax credits Tax credits are beneficial to qualifying individual. Tax credits have the potential to be a strong aid against tax liability and, in some cases, giving the taxpayer more money. Claiming a tax credit is beneficial to all taxpayers as long as the taxpayer qualify for it http://www.ehow.com/info_8033916_tax-credit-affect-taxes.html#ixzz2FAbZan15). Numerous federal tax credits exist to help taxpayers -- primarily those in middle-income and low-income households -- retain more of their earnings. These credits may be based on income, family status, work status, or other factors. Often such