Federal Tax Agreement Benefits Low-Income, Working Women

Mother and daughterThe Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, passed in December, not only benefits low-income, working families and the unemployed but also supports policies that provide relief for working mothers and female-headed households. Tax credits such as the Child Tax Credit (CTC) and the Earned Income Tax Credit (EITC) help reduce poverty and promote financial stability among low-income, working families. Such families are disproportionately female-headed households. One-third of working mothers are the sole wage-earners in the family—they are the heads of households or their spouses are out of work.

The American Recovery and Reinvestment Act of 2009 (ARRA) expanded the CTC and the EITC to include more families with larger tax credit amounts; the tax agreement extends the expansion and includes other supportive policies that benefit women and low-income families. According to a report by the White House, women represent 60 percent of the parents benefiting from the EITC and CTC expansion and will continue to benefit from the recent extension.

The CTC assists low- and moderate-income families with children by reducing their federal tax burden. The ARRA’s expanded provisions allowed for a lower-income threshold to qualify for the credit and increased the credit from $500 to $1,000, letting more of a family’s income to be counted toward the credit. These provisions have been extended for two more years. Eight million women and six million families headed by a single mother will benefit from the larger CTC because of the extension. The CTC has been regarded as a powerful tool for fighting poverty among families with children.

The EITC supplements the wages of low-income, working women and families by offsetting federal payroll and income taxes. The tax agreement extends the ARRA expansion of a higher credit amount for families with three or more children and reduces the marriage penalty. The EITC lifts more children out of poverty than any other single program or category of programs. The agreed-upon extension means that about six million women and one million families headed by single mothers will receive an expanded EITC tax credit.

All this will direct substantial resources to women and families headed by single mothers and alleviate their economic hardship. Moreover, the tax agreement contains provisions that benefit all low-income families, students, and the unemployed:

  • Workers’ take-home pay will be larger. The tax agreement cuts for two years the rate for the individual payroll taxes used to fund Social Security by 2 percent. This will boost workers’ take-home pay and will keep 900,000 workers out of poverty while stimulating the sluggish economy.
  • Federal unemployment benefits are extended through 2011. The extension will prevent seven million jobless workers from losing essential income support. This provision had been estimated to create 600,000 to 900,000 jobs next year alone. The extension ensures that workers have access to financial support while they search for work; it also benefits families with children.
  • The American Opportunity Tax Credit (AOTC) is extended. The AOTC provides a partially refundable tax credit of up to $2,500, making college costs and tuition more affordable for students and families. The tax agreement makes permanent the deduction of student loan interest—a tax incentive that provides relief for those paying off student loans. This will have a favorable effect on women’s economic achievement and growth.

These specific provisions in the tax agreement protect working mothers, low-income families, students, and the unemployed in many respects. Increasing take home pay, reducing the tax burden for low-income families, and providing support for jobless workers are all effective antipoverty policies and a sound economic stimulus as well.

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