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Encyclopedia > Tax credits
This article or section should be merged with tax credit

Tax credits are credits on tax payable given by the government for specific reasons. It is a direct reduction in taxes and is applied against tax payable[1] (http://www.irs.gov/app/understandingTaxes/jsp/tools_glossary.jsp). The credit could be granted to individual taxpayers, such as a "child tax credit"[2] (http://www.adviceguide.org.uk/index/life/benefits/child_tax_credit_and_working_tax_credit.htm), or it cocould be granted to companies to be applied against corporate tax such as a "scientific research tax credit"[3] (http://www.cra-arc.gc.ca/taxcredit/sred/menu-e.html).

Tax credits and minimum wage

Tax credits may be given to employers to encourage them to pay employees more. Tax credits would be less draconian than minimum wage legislation. In the United Kingdom, employers do not pay for either the ‘Child Credit’ or ‘Working Tax Credit’ but are expected, instead of paying the amounts due to the Inland Revenue, to give it directly to their employees. Single low earners working over 16 hours per week and couples working 30 hours combined are eligible. If one supports children, the supplements are greater. Two issues are being addressed, the so called employment and poverty traps. That means the disincentive to work when expected wages are little more than unemployment benefits, and the difficulty for workers to break above a net earning margin faced with not just income tax, but national insurance, VAT, student loan repayments and other cumulative tax burdens.

This indirect wage regulation forms an important part of income for low earners and their families. It reduces the stigma of collecting benefits for workers and perhaps even shifts it to employers, who become very aware they are giving staff low pay. It is not a direct cost to employers in the way a NMW is, but in some cases it has been found that employers put pressure on workers to do fewer hours to avoid extra tax forms. So it should be questioned why simply raising the personal allowance can not do the same for single workers with reduced administrative burden for both employers and the Inland Revenue.

See also

  Results from FactBites:
Tax credit - Wikipedia, the free encyclopedia (532 words)
Tax credits may be characterized as either refundable or non-refundable, or equivalently non-wastable or wastable.
Refundable or non-wastable tax credits can reduce the tax owed below zero, and result in a net payment to the taxpayer beyond their own payments into the tax system, appearing to be a moderate form of negative income tax.
Some examples of non-refundable tax credits are the Hope and Lifetime Learning educational tax credits in the US or the former children's tax credit in the UK.
Department of Energy - Tax Breaks (1050 words)
A tax credit is generally more valuable than an equivalent tax deduction because a tax credit reduces tax dollar-for-dollar, while a deduction only removes a percentage of the tax that is owed.
Beginning in tax year 2006, consumers will be able to itemize purchases on their federal income tax form, which will lower the total amount of tax they owe the government.
This tax credit is for vehicles “placed in service” beginning January 1, 2006, but because there is a waiting list for many hybrids, consumers can receive the tax credit if they arrange to purchase the vehicle this year as long as they do not take possession of the vehicle until January 1, 2006.
  More results at FactBites »



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