Are you ready for tax-filing season?
Tax filing season has officially opened in Michigan and nationwide. On Monday, Jan. 28, the Internal Revenue Service started accepting paper and electronic returns — despite the temporary government shutdown. As everyone groans and starts collecting their W-2s and other various forms, statements and receipts, I wanted to take a minute and highlight a few things this year.
First, as you or your tax preparer are slogging through your federal and state income tax forms, remember that taxes do a lot of good. Taxes help pay for the roads we drive on and the schools we send our children to. Taxes help pay the people who make sure our food won’t make us sick, monitor our air quality, and keep our flights (to hopefully someplace warm) safe. Taxes pay for the police and fire departments that keep our communities safe and taxes help keep the street lights on in our neighborhoods.
We pay taxes to keep our state and our nation running, and, without adequate and fair tax systems, we cannot provide the services that residents and businesses alike really need.
Second, your federal tax form could look a lot different this year.
In late 2017, the policymakers in Washington pushed through significant, deficit-increasing tax cuts that largely benefit profitable corporations and wealthy taxpayers and provide little benefit to the rest of us. While there are many fundamental flaws in the tax law that could be discussed — essentially near-elimination of the estate tax, significant reductions in top marginal rates that mostly benefit wealthy taxpayers, and a slashing of the corporate tax rate, for starters — one is especially unbalanced: changes to the Child Tax Credit.
The Child Tax Credit was originally enacted to help working families offset the cost of having and raising children. However, working families with low incomes were largely left out of the full Child Tax Credit increase included in the tax bill. In fact, in Michigan, it is estimated that 365,000 children under the age of 17 in working families with low incomes will only see a $75 or less increase in their Child Tax Credit, while the largest increases will go to high-income families.
Finally, make sure you take advantage of the Earned Income Tax Credit if you qualify. The Earned Income Tax Credit is a refundable income tax credit for families that work but have low earnings, and it is available both federally and on your state return (note: Michigan’s credit is equal to 6 percent of the federal credit). Families who receive it use it to pay for basic necessities, home or car repairs, or pay down debt. And, while it’s a huge boost to the income of Michigan families with modest incomes, it could do so much more.
As the Michigan League for Public Policy has outlined in our new policy agenda released last week, The Owner’s Manual for Michigan (mlpp.org/michmanual), Michigan’s Earned Income Tax Credit should be incrementally increased back to 20 percent of the federal credit, where it was before former Gov. Rick Snyder and legislative Republicans significantly cut it.
Additionally, many young, childless workers, including young workers just starting out and noncustodial parents, do not qualify for a federal or state Earned Income Tax Credit or only receive a very small credit, We should look at expanding our state Earned Income Tax Credit so more of these families get the income boost they need.
So, as you gather up all of your tax documents and receipts, remember to have patience in working through all of the possible changes.
Depending on your income, you may also qualify for free tax preparation through the Volunteer Income Tax Assistance program. E-file for a quicker refund, and do not pay for a rapid-refund product that will cost you more in the long run than if you wait for your tax return to be processed and refund to be paid.
And, at the end of the day, think about all of the good you’re doing by paying your taxes.
Rachel Richards is legislative coordinator for the Michigan League for Public Policy.