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43-419: WTC can be claimed by working individuals, childless couples and working families with dependent children. In addition, people may also be entitled to Child Tax Credit (CTC) if they are responsible for any children. WTC and CTC are assessed jointly and families remain eligible for CTC even if where no adult is working or they have too much income to receive WTC. In 2010, the coalition government announced that

86-570: A Perverse incentive for employers to keep wages low. Child Tax Credit A child tax credit ( CTC ) is a tax credit for parents with dependent children given by various countries. The credit is often linked to the number of dependent children a taxpayer has and sometimes the taxpayer's income level. For example, with the Child Tax Credit in the United States , only families making less than $ 400,000 per year may claim

129-427: A true income tax still further. By comparison with other means tested benefits , the income treatment of claimants of tax credits is especially generous; it permits deduction of the full gross amount (rather than 50% net) of any individual pension contributions and any Gift aid payments. Since increases in income are subject to withdrawal at 39%(in the initial range), such reductions are effectively 'rebated' at

172-422: A married couple . The main means-tested benefits in 2019 were: Receipt of such benefits other than Housing Benefit and tax credits is a passport to other non-cash help such as free school meals , free prescription charges , Legal Aid , cold weather payment . The claimant, their partner and dependent children are covered. The rules for free NHS dentistry and optical charges have become more complex since

215-566: A means test was among the factors giving rise to the National Unemployed Workers' Movement in the United Kingdom . Today, means-tested benefits —meaning that entitlement is affected by the amount of income, savings, capital and assets— is a central feature of the benefit system. Means testing is also part of the determination of legal aid in a magistrates court and for the higher Crown Court . The means test

258-527: A portion of their debts, but may not use Chapter 7 to wipe out their debts altogether. The bankruptcy means test is complex and the terms that govern many parts of it – including those terms that control whether it applies at all – are of unsettled definition. Other examples of means testing include Medifund in Singapore and medical cards in Ireland. Both are used in the healthcare sector. Australia uses

301-445: A rate of £1 for every £15 of income. Recipient households of combined WTC/CTC awards thus fell into three categories WTC and CTC for the current tax year are considered to be an interim award because they are based on the previous tax year's gross household income. Final awards would need to be adjusted in subsequent years when the actual income is known. Since large fluctuations from year to year would be undesirable, broad allowance

344-536: A significant effect on child poverty . In 2016, it was estimated to have lifted about 3 million children out of poverty. In 2021, a Columbia University study estimated that the expansion of the CTC in the American Rescue Plan Act reduced child poverty by an additional 26%, and would have decreased child poverty by 40% had all eligible households claimed the credit. Means test A means test

387-480: Is in principle assessed similarly to UK income tax. Thus 'income' (c/f 'taxable income') consists of what the individual receives from gross earned and unearned sources—less allowances for 'expenditures' that would reduce that income. But, unlike income tax, tax credits measure income based on family 'household', rather than the individuals within. Also the effect of income disregard —to mask large annual increases in resources from reassessment— weakens comparisons with

430-568: Is a determination of whether an individual or family is eligible for government benefits, assistance or welfare , based upon whether the individual or family possesses the means to do with less or none of that help. In Canada, means tests are used for student finance (for post-secondary education ), legal aid , and " welfare " (direct transfer payments to individuals to combat poverty). They are not generally used for primary and secondary education which are tax-funded. Means tests for public health insurance were once common but are now illegal, as

473-436: Is available to taxpayers who have children under the age of 17 (or in 2021 under the age of 18). Since 2018, the CTC is $ 2,000 per qualifying child. It is available in full to single filers who make up to $ 200,000 and married couples filing jointly who make up to $ 400,000. Above these limits, the CTC is phased out at the rate of $ 50 for each additional $ 1,000 earned. When a taxpayer's credit value exceeds his or her tax liability,

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516-462: Is based on 'gross' rather than 'net' income, however, the claimant is also subject to Class 1 NIC national insurance contributions at 12 per cent and UK income tax at 20 per cent—making an effective marginal tax rate of 73 per cent. For example, if one person in a couple earns £10,000 pa, then the amount of withdrawal is Under withdrawal, entitlement to WTC is gradually reduced first until 'exhausted' at an income level that can be calculated from

559-460: Is based on income, family circumstances and essential living costs. The Beveridge Report of 1942 proposed a system of contributory benefits which would leave only a residual role for means-tested benefits which were then called National Assistance . The income limits are specified in relation to the needs of a household and for savings there are upper limits for some of the benefits. A couple who are not married may be treated as living together as

602-537: Is claimed could affect the poorest families disproportionately. On Monday 26 October 2015, the House of Lords voted for Labour Party proposals for financial redress to those affected by reduced entitlements. Since 2018 Child Tax Credit has been replaced by Universal Credit for most people. UK citizens may claim Child Benefit which is paid out by the UK tax authority HMRC and anyone earning less than £60,000 year will receive

645-532: Is considered). For example, a couple would have elements calculated as The withdrawal rate is the amount that is deducted from the Elements described above. If the gross annual income exceeds a predetermined first threshold of £6,420 (in 2013/14) then the withdrawal rate is 41 per cent. This means that for every £1 earned above the threshold, 41p of the WTC entitlement is withdrawn. As withdrawal of tax credits

688-454: Is made for this by disregarding the first £2,500 of any increase in the final income from one year to the next. Only changes in excess of this income disregard are taken into account in establishing a final award. Overpayments are recovered by adjustment to the amount of the following years' interim award. Tax credits have not proved to be nearly as robust or well administered as the initial design envisaged. Claimants have not always recognised

731-411: Is paid whether or not the family has a net tax liability – and is paid in or out of work. Higher rates are paid for disabled children. It is integrated with the working tax credit , which also provides support for childcare costs. All taxable income is tested for the credit, so a couple who both work and have children, will have both salaries taken into account. Tax Credits may be capped which it

774-426: Is referred to as the "means test". The means test provides for a finding of abuse if the debtor's income is higher than a specified portion of their debts. If a presumption of abuse is found under the means test, it may be rebutted only in the case of "special circumstances". Debtors whose income is below the state's median income are not subject to the means test. The Code-calculated income may be higher or lower than

817-526: Is subject to withdrawal from the point at which WTC entitlement would have been zero (called the First threshold for those entitled to Child Tax Credit only ). In 2009/10 this threshold was £16,040. However, unlike WTC, CTC does not continue to reduce to zero. It reduces only until it reaches the "basic family element" of £545pa. Thereafter it remains fixed until the household reaches a second income threshold (£50,000 in 2009/10). After that it reduces again at

860-589: The Canada Health Act of 1984 requires that all the provinces provide universal healthcare coverage to be eligible for subsidies from the federal government. Means tests are also not used for pensions and seniors' benefits, but there is a clawback of Old Age Security payments for people making over $ 69,562 (in 2012). The Last Post Fund uses a means test on a deceased veteran's estate and surviving widow to determine whether they are eligible for federal funding to subsidize their funeral. Resentment over

903-421: The first threshold and the basic award. For a couple, for instance, this would be: £6,420, plus (£1,920 + £1,970) divided by 41%. That is £15,908 in rounded figures. In this example, the award is then calculated as follows: WTC and CTC were designed to be a seamless allowance that steadily reduces as family income rises. If they are claimed together, both combine to form the basic award. This combined award

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946-607: The 1960s, for benefits such as those provided by Medicaid and the Food Stamp Program. In 1992, third-party presidential candidate Ross Perot proposed that future Social Security benefits be subjected to a means test; though this was hailed by some as a potential solution to a purported impending crisis in funding the program, few other political candidates since Perot have publicly made the same suggestion, which would require costly investigations and might associate accepting those benefits with social stigma . In 2005,

989-570: The UK were entitled to claim Working Tax Credit or the companion Child Tax Credit, although around 2 million people do not do so. The levels of Tax Credit take-up in the UK have not risen in recent years, despite an increase of 100,000 children living in households classed as "below the poverty line" between 2004 and 2005. The introduction of the Working Tax Credit scheme was marred by implementation issues and large-scale overpayments. The Office for National Statistics estimated that of

1032-529: The US substantially changed its bankruptcy laws , adding a means test to prevent wealthy debtors from filing for Chapter 7 Bankruptcy. The most noteworthy change brought by the 2005 BAPCPA amendments occurred within 11 U.S.C.   § 707(b) . The amendments effectively subject most debtors who make an income, as calculated by the Code, above the median income of the debtor's state to an income-based test. This

1075-548: The Withdrawal component is income based. The following sections describe how each component is arrived at. The Working Tax Credit (WTC) and the Child Tax Credit (CTC) are made up of "elements" related to individual circumstances. Examples of elements for an entire year are: Each element that applies to a claimant's circumstances is added together to determine the maximum award of tax credit (before any withdrawal

1118-506: The Working Tax Credit would, by 2017, be integrated into and replaced by Universal Credit . However, implementation of this has been repeatedly delayed and will not be finished until 2024 at the earliest. Since 2018, no new claims can be made for Working Tax Credit, they must be made for Universal Credit. The WTC replaced the Working Families Tax Credit (WFTC), which operated from April 1999 until March 2003. The WFTC

1161-466: The child elements in means tested benefits, the Children's Tax Credit in the tax system, and disabled persons tax credit. In 2014 WTC and CTC combined distributed £30 billion per year. The basic operation of the tax credit is broken down into the following steps: The amount of the award is calculated from two separate amount as follows: The component called Elements is based on circumstances whilst

1204-424: The credit fully-refundable and offered the option of receiving half of the credit as six monthly payments. 39 million households, covering 88% of children in the United States, will begin receiving these payments automatically beginning July 15, 2021. The proposed Build Back Better Act would extend the expansion for an additional year and make the full refundability of the CTC permanent. The child tax credit has

1247-439: The debtor's actual income at the time of filing for bankruptcy. This has led some commentators to refer to the bankruptcy code's "current monthly income" as "presumed income". If the debtor's debt is not primarily consumer debt , then the means test is inapplicable. Thus, the means test is a formula designed to keep filers with higher incomes from filing for Chapter 7 bankruptcy. These filers may use Chapter 13 bankruptcy to repay

1290-589: The eligibility for relief for debtors who have sufficient financial means to pay a portion of their debts. The means test is perhaps best recognized in the United States as the test used by courts to determine eligibility for Title 11 of the United States Code Chapter 7 or Chapter 13 bankruptcy . During the Great Depression in the 1930s, the test was used to screen applicants for such programs as Home Relief , and starting in

1333-465: The extent to which the incomes of low earners can fluctuate over a year, especially a problem for self-employed people whose income may fall below the minimum wage (at which point Working Tax Credit is disallowed). The Labour Party claimed that the tax credit system was effective in tackling child poverty, with, by their government's definitions, 2 million children lifted out of absolute poverty and almost 1 million out of relative poverty by 2007. However,

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1376-526: The full CTC. Similarly, in the United Kingdom, the tax credit is only available for families making less than £42,000 per year. Germany has a programme called the "Kinderfreibetrag"  [ de ] which, despite technically being a tax exemption and not a tax credit , functions similarly. The child allowance is an allowance in German tax law, in which a certain amount of money is tax-free in

1419-424: The full benefit. Anyone earning between £60,000 and £80,000 per year will need a percentage back with £80,000 or more per year paying the full amount back. Currently, the only way to make a new claim for Child Tax Credit is if you have an existing Working Tax Credit claim. This will be phased out due to the government moving everyone over to Universal Credit and is expected to happen in 2024. The child tax credit

1462-691: The introduction of Universal Credit and have led to many people facing financial penalties, often wrongly. People who are not entitled to any of the qualifying benefits may be able to qualify for help with health charges by a separate means test, the NHS Low Income Scheme . Defunct benefits include: Means testing is used to test for eligibility to Medicaid , Temporary Assistance for Needy Families , Section 8 housing , Supplemental Nutrition Assistance Program , Pell Grant , Federal Supplemental Educational Opportunity Grant , Federal Work-Study Program , direct subsidized student loans, as well as

1505-439: The need to report any change of circumstances immediately. The time taken by the system of administration to then take these into account adds to any overpayment generated and shortens the time available for their recovery. This led to significant levels of overpayments. In order to reduce the overpayment problem, the income disregard was raised tenfold from £2,500 to £25,000 with effect from 2006/07. Income for tax credit purposes

1548-400: The same rate through the tax credits received. Thus, while a pension (or Gift Aid) contribution of £100 will cost the employee £80 (after basic rate tax relief) directly from net pay, it attracts an additional £39 in tax credits; so the true cost is only £41. Other concessions with regard to assessment of income (in contrast to means testing used elsewhere) include: Around 7 million people in

1591-485: The subsequent Coalition government sought to redefine poverty so as to highlight "children living in workless households or those with drug-dependent parents", despite their tax credit incomes, remaining in poverty. Even with the previous definition, this government claimed that the existing tax credits system failed to "meet its statutory target to halve the problem by 2010 – despite the huge amount of taxpayers’ money spent on tackling it." Any supplement to low wages acts as

1634-399: The taxation of parents. In the income tax fee paid, child benefit and tax savings through the child tax credit are compared against each other, and the parents pay whichever results in the lesser amount of tax. In the United Kingdom , a family with children and an income below about £32,200 could claim the child tax credit on top of child benefit . The tax credit is "non-wastable" – it

1677-471: The taxpayer is eligible for the additional child tax credit (ACTC), which is calculated as 15% of the taxpayer's AGI in excess of $ 2,500 (i.e. a family must make at least $ 2,500 to be eligible for the credit), with the refund value capped at $ 1,400. The American Rescue Plan Act (ARP) of 2021 significantly expanded the child tax credit for one year, allowing qualifying families to offset $ 3,000 per child up to age 17 and $ 3,600 per child under age 6. It also made

1720-489: The way that credits are calculated on an annual basis, leading to overpayment, followed by large demands for repayment, which those on low income may find difficult to meet. David Harker, chief executive of Citizens Advice , commented "This is an untenable system. An annualised system doesn't provide the stability of income required by low income families." In addition, the scheme was accused of being over-complicated and difficult for claimants to understand, and of underestimating

1763-526: The £13.5bn paid out in tax credits in 2004, £1.9bn consisted of overpayments. In addition, computer problems led to delays in many receiving payments, causing significant financial hardship for those on low incomes, and resulting in EDS losing its contract to provide the Inland Revenue with computer services. These problems led to considerable political fallout. Dawn Primarolo , who as Paymaster General

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1806-419: Was itself a transitional system from the earlier benefit for working families known as Family Credit (FC), which had been in operation since 1986. The WFTC shared its assessment of means and period of renewal (6 months) with FC but moved towards a tax credit approach styled on schemes in other countries, which used an annual declaration of income to assess entitlement for a whole year. Tax credits also replaced

1849-402: Was the minister responsible for the implementation of tax credits, had to apologise to parliament and was asked whether she had "lost control" of her department. Prime Minister Tony Blair also apologised to Parliament over the incident. The Working Tax Credit scheme was subject to much criticism, particularly in the wake of the difficulties surrounding its implementation. Criticism focused on

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