Simplifying Family Tax Credits: Why it Matters and What Can Be Done

Every tax season, families look for ways to maximize their deductions and credits so they can save the most money. Two important credits in particular, the Child Tax Credit (CTC) and Earned Income Tax Credit (EITC) have been at the center of discussions from the kitchen table to the halls of Congress. It is clear that more needs to be done to ensure taxpayers can benefit from these credits.

We have recently seen quite a bit of discussion in Congress about family tax credits, and, in particular, the EITC and CTC. In fact, the US House of Representatives passed bipartisan legislation to expand the CTC, a proposal that according to some would benefit 16 million children from low-income families and in its first year, raising 400,000 children above the poverty line. With the poverty rate for children under the age of 18 at 16.3%, expansion would make a huge impact on some of our country’s most vulnerable people.

While CTC expansion is currently stalled in the Senate, at Intuit we encourage ongoing conversations around benefits like the CTC and EITC, which have become some of the most effective tools for lifting low-income workers and their families out of poverty. We are especially committed to helping find a way to simplify the process for families to claim these credits and raising awareness for eligible families.  

What we know is that tax complexity impedes individuals, the self-employed, small businesses, and especially lower-income workers from maximizing their well-earned tax benefits. Take for example the EITC—for a family with 3 kids this year, it’s a refundable credit up to $7,430. But the IRS reports that one out of five qualifying families miss the credit. That’s due to many things, including a lack of knowledge about the benefit and its requirements and eligibility. In fact, the IRS estimates that approximately 50% of EITC claims have errors. We also know that audit rates of low-income wage-earners taking the EITC are five and a half times higher than those of everyone else. Intuit TurboTax helps our customers navigate tax credits, ensuring they receive the maximum refund guaranteed—but more can and should be done for everyday Americans. 

The US’s complex tax code is the result of decades of changes and additions by Congress that have a major impact on the lives of taxpayers. Over 30 years, the tax code became three times longer; and, in Intuit’s opinion—infinitely more difficult to understand. We don’t write the tax code—Congress does—but we think that everyone deserves a tax code they can easily understand. A good place to start is with family tax credits. 

The Niskanen Center, a Washington D.C. based think tank focused on advancing prosperity and opportunity, recently published a paper titled, “Building a stronger foundation for American families: Options for Child Tax Credit reform.” Their paper outlines the history of CTC and EITC, and offers some suggestions for how family tax credits can be made better. In their estimation, “the poverty trap of the 1990s has been replaced with a just-above-poverty trap” today. One of their conclusions is that tax benefit consolidation would make a huge difference in lowering costs and complexity, while still providing generous tax benefits for families. As a company, we’ve advocated for simplifying these credits for more than a decade, including support for the research of several respected tax policy experts like Nisknanen.

There are proposals on both sides of the aisle on how to do this, but we can all agree that it’s important to start by making these vital programs easier to understand and take advantage of. 

Intuit believes that taxes should be transparent, simple, and fair. Simplifying the tax code is important for our customers, and it’s important to us, too. It’s good business. It should be good policy, too.