State Reduces Tax Credits, Affects Rural Poor

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As the federal government tries to raise awareness about a tax credit for the working poor, Wisconsin is seeing savings by reducing what’s known as the “earned income tax credit.”

A legislative fiscal bureau analysis shows the amount Wisconsin paid for the earned income tax credit declined 18 percent last year. That’s because of cuts made in the state budget. What the state saved, individuals lost. Tamarine Cornelius is with the nonprofit Wisconsin Budget Project. She says the reduced credit is tantamount to a tax increase for people who can least afford it: “Changes that would take about $500 a year out of the pocket of a single mom working at minimum wage trying to support her 2 kids. Because this credit was so deeply cut last time, these families are essentially paying more in taxes.”

Cornelius looked at which parts of the state were benefiting the most from Wisconsin’s state earned income tax credit: It’s rural residents. 15 percent of those in rural areas use the credit as opposed to 13 percent of those in metropolitan counties. Outreach and free tax preparation help boost awareness. Still, 20 percent of U.S. residents eligible for the federal earned income tax credit don’t receive it because they don’t file a return. Christopher Miller is with the Internal Revenue Service. “About a third of the people eligible for EITC changes every year. Probably because people lose a job or get one, or they have a child or they change their marital status. And that changing population is why it’s so important to raise new awareness every year”

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Half of all states offer the credit, in addition to the federal government.

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