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Assignment 3: Tax Credits - Research Paper Example

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Assignment 3: Tax Credits

Tax credits are neutral and enable the Congress in making certain that specific taxpayers get tax credit as concerns marginal tax rates (Cordes, Ebel, & Gravelle, 2005). This purpose is still relevant for today’s taxpayer because the economy of the country has continued to deteriorate over the years. As such, individual and businesses still need protection from harsh economic times. Fairness of Tax Credits and Their Impacts on Taxpayers According to (Murphy & Higgins, 2011), tax credits provide incentives to taxpayers hence motivating them to actively engage in certain economic activities. Tax credits also ensure the cannon of equity among taxpayers and avail tax-relief for low-income earners. The Congress favors the use of tax credits to deductions since the amount of tax relief is similar for all taxpayers falling in various marginal tax brackets. Tax credits are in most cases nonrefundable and if the total of the credit is more than the tax owed, the taxpayer has no prerogative over the extra credit paid. However, the earned income tax credit and in particular occasions, the child credit are refundable. Many people have criticized tax credits for being unjust. Refundable tax credit is arguably the most unfair form of tax credit. Refundable tax credits are those that a person can get back irrespective of the amount of tax he or she paid. According to Murphy and Higgins, tax credit is refundable when the taxpayer receives tax credit when his or her total tax liability is zero (Murphy & Higgins, 2011). Refundable tax credit is an unconstructive income tax, where the taxpayer does not bear tax liability but collects compensation from the federal government on the basis of his or her income. This scenario perpetuates fraud in the handling of refundable tax credits. Tax credit payable to the taxpayer phases out when his or her income supersedes the pre-set income limit. The utilization of the phase out principle ensures that lower-income taxpayers receive higher tax credit than and reduces or get rid of credits available for high-income taxpayers. Tax credits are only beneficial to individuals who pay taxes. If the poor fail to pay taxes, they are locked out from using tax credits without resorting to sophisticated and expensive leasing deals, which basically benefit the leasing company and not the individual leasing the a property. Despite the fact that tax credits are embraced by many people for availing relief for taxpayers, they have been criticized by a section of the population for unfairness and inconsistency. Tax credits makes the situation even worse for poor individuals who do not qualify for the tax credits as they try to get into deals, which they perceive would be beneficial to them in terms of receiving credits. Unfortunately, they end up getting caught in large debts that they never had before. Tax Credits Susceptible To Abuse by Taxpayers and Possible Professional Accountant Advice In the United States, there have been many claims of billions of dollars paid to illegal immigrants in tax credits. The Internal Revenue Service (IRS) demands that everyone in the united states must file tax return irrespective of whether they are Americans or not. The payment of “illegal tax credits” to illegal immigrants happens at the expense of the legitimate taxpayer. As such, the tax credits that are susceptible to abuse are refundable tax cr ...Show more


Assignment 3: Tax Credits Name: Institution: Course: Professor: Date: The Original Purpose of Tax Credit in the U.S Tax Code and Its Present Relevance to the Taxpayer “Tax credit is a direct reduction in the tax liability of the taxpayer receiving the credit” (Murphy & Higgins, 2011 pg…
Author : irosenbaum
Assignment 3: Tax Credits essay example
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