How does the Earned Income Tax Credit (EITC) program help keep millions of Americans above the poverty line?

• A. By providing refundable tax credits that increase the after-tax income of low-income working families
• B. By reducing payroll taxes for high-income earners
• C. By offering direct cash grants to all unemployed individuals regardless of income
• D. By increasing the minimum wage for all workers

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the purpose of the Earned Income Tax Credit (EITC). The EITC is designed to support low- to moderate-income working individuals and families by supplementing their earnings through the tax system.
2. Step 2: Recognize that the EITC provides a refundable tax credit. This means that if the credit amount exceeds the taxes owed, the taxpayer receives the difference as a refund, effectively increasing their after-tax income.
3. Step 3: Analyze how this refundable tax credit impacts low-income working families. By increasing their after-tax income, the EITC helps lift these families above the poverty line, providing financial relief and incentivizing work.
4. Step 4: Contrast the EITC with other options such as reducing payroll taxes for high-income earners, offering direct cash grants to all unemployed individuals, or increasing the minimum wage. These options do not describe the mechanism or target group of the EITC.
5. Step 5: Conclude that the EITC helps keep millions of Americans above the poverty line specifically by providing refundable tax credits that increase the after-tax income of low-income working families.