Tax credits

Prior to 1975 if a person receiving welfare went to work they would lose part or all of their benefits depending on how much they earned. This discouraged work and so the law was adjusted to minimize the effect of work. So the government instead of just removing this impediment decided to introduce something called the earned income credit (EIC). If you worked you would still lose your welfare but you would be compensated by the EIC. Your benefits increase if you have one, two or three children. This year the maximum benefit is $6,300 if you have three children and earn less than $54,000. The benefit decreases as your income rises above a certain level. For example this family earning $25,000 would get a $6,000 benefit but the same family earning $35,000 would get $4,000. In 1987 the law changed and each child was required to have a valid social security number and at that time 7 million children who had been receiving benefits disappeared. There was obviously a lot of fraud going on. The EIC is a refundable tax credit meaning you can claim it even if you owe no taxes. If you have three children and earn $35,000 you will pay no federal or state income tax and you will receive $4,000 in EIC plus another $6,000 in child tax credits. In addition there are other public assistance benefits that you may qualify for.