This is backward because I'm trying to get an idea of how to get to a refund figure.
Scenario: Single W2 Wage earner. Feds return 1,123
I think I understand how if they're below the poverty line they could have 100% returned.
What are the 2 figures they possibly could have earned to have the feds return this amount (above and below poverty line)?
I hope this is enough information to work this "math" problem backward.
Jay,
Someone linked the answer above.
There is a rare breed of beast called a
refundable tax credit. Most people in the flying community have never seen one. We make too much money.
With most tax credits you get to deduct the credit from the tax due. If you can't use all of the credit then it stops at $0. This is the case with the standard deduction, home insulation credit, etc.
With a refundable credit the taxpayer actually gets the excess money from the credit. This means it is possible to get more money as a tax refund than is paid into the system. The most popular refundable credit is the Earned Income Credit. It's purpose is to give people incentive to work.
The IRS recently discovered that between 1/4 and 1/3 of all EIC credits are fraudulent. The most common avenue for fraud is claiming children that don't exist. With the child adjustments maxed out the EIC can be over $5,000. It's lucrative to people with little money.
In an effort to stem fraud the IRS stepped up auditing and changed some rules. People caught committing fraud are locked out of EIC for ten years. People that get caught with sloppy accounting but not egregious enough to rise to the level of fraud are locked out of EIC for two years.
Another avenue for abuse is scammers will work above the table until their EIC credit peaks. Then they work under the table or in an illegal market for the remainder of the year.
Additional research also shows that EIC credits are not used as intended such as helping pay for food and/or shelter. Instead they tend to be used for purchasing durable goods such as entertainment electronics, rims, etc. Some economists argue that despite the EIC money being spent in ways other than intended the EIC still effects a net positive gain to GDP. Their estimates vary between about a penny and twenty five cents net GDP gain per EIC dollar.
