Minimum wage versus Earned Income Tax Credit

Category: Minimum Wage, Tax
Last Updated: 06 Jul 2021
Pages: 5 Views: 155
Table of contents


Minimal pay can be defined as the smallest hourly pay rate that a staff member paid as authorized by federal jurisprudence. The pay rate was ab initio verified by corporate bargaining by authorities regulations and ordinance, saying the lowest rate at which workers may be employed. A legal minimal pay rate is one permitted by authorities for all staff members in a society, with little figure of freedoms. In other words, lower limit pay is the least dollar sum that company must pay to non-exempt staff members per hr, as permitted by local, province or federal jurisprudence. Most of the companies pay to the workers by hourly rate or in some other manner like on committee footing. However, in any instance, the sum of dollar that qualified staff members earn, divided by the entire hours that they worked, must be tantamount to the current minimal pay rate.

Earned income revenue enhancement recognition is a revenue enhancement recognition for employees gaining low incomes. Even employees whose incomes are so low to hold paid revenue enhancements can acquire earned income revenue enhancement recognition. The thought is to diminish the income revenue enhancement that for certain low-income tax-payers would otherwise be indebted. It is a refundable sum of recognition ; hence if the revenue enhancement that is outstanding is less than the sum of the recognition, the difference is paid to the taxpayer as a refund. To run into the standards for the earned income revenue enhancement recognition, a taxpayer must work and gain less than the authorities 's bound for registering position and household fortunes, convene a set of peculiar state of affairss, and register the needed IRS programs.

Order custom essay Minimum wage versus Earned Income Tax Credit with free plagiarism report

feat icon 450+ experts on 30 subjects feat icon Starting from 3 hours delivery
Get Essay Help

Minimal pay versus earned income tax Credit

Minimal pay can be defined as the smallest hourly, day-to-day or monthly pay that employers may legitimately pay to employees or staff members. Systematically, it is the lowest pay at which employees may sell off their labor. Even though minimal pay regulations are in consequence in a great many governments, there are unsimilarities of sentiment about the net incomes, benefits and disadvantages of a minimal pay. The follower of the minimal pay say that is enhances or increases the populating criterion of employees and this will certainly cut down the per centum of poorness. Whereas, rivals say that if it is more than plenty to be effectual, it increases the ratio of unemployment, specifically among employees with really low productiveness because of rawness or disability, in that manner to aching lesser skilled workers to the benefit of better skilled workers.

Minimal rewards were ab initio planned as a manner to form the detonation of perspiration stores in fabrication industries. The perspiration stores provide services to big population of adult females and immature workers, reimbursing them what were judged to be unsatisfactory rewards. Nowadays, lower limit pay Torahs cover up employees in most low-paid countries of employment. Even though, the aims of the minimal pay are loosely admitted as proper, there is great disagreement as to whether the minimal pay is much effective in accomplishing its aims. From the clip of their debut, lower limit pay Torahs have been highly controversial politically, and have received less aid and support from economic experts as compared to the general populace ( Neumark, & A ; Wascher, 2008 ) .

Earned income is a scientific and practical term defined by the United States revenue enhancement codification. The below mentioned are the chief beginnings for the earned income:

- rewards, wages, tips, committees from outside beginnings and other nonexempt employee compensation

- net incomes from self-employment

- sum income received as a statutory employee

- less population of disablement payments

- non-taxable battle wages which an associate of the United States armed services opts to include entirely for the motivation of earned income revenue enhancement recognition computation.

Earned income revenue enhancement recognition shortly known as EITC or EIC, is a refundable revenue enhancement recognition, it is agencies tested, and planned to back up low-income employees of staff members and equilibrate the load of United States paysheet revenue enhancements. In other words, it is a refundable federal income revenue enhancement recognition for little to sensible income working individuals and households. Initially, Congress granted the revenue enhancement recognition statute law in 1975 in portion to counterbalance the burden and load of societal security revenue enhancements and to offer an inducement to work. When earned income revenue enhancement recognition goes beyond the sum of outstanding revenue enhancements, the effects in a revenue enhancement refund to those who claim and measure up for the recognition. To run into the standards for earned income revenue enhancement recognition, you must hold earned income from employment, self-employment or any other resource and acquire together specific regulations and ordinances. Additionally, you must either run into the excess regulations for staff employees or workers without a measure uping kid or have a child that convenes all the Qualifying Child Rules for you ( Meyer, & A ; Holtz-Eakin, 2002 ) .

As, we have discussed about the basic debut of both footings, now, we can make up one's mind which does more for households holding low incomes? Raising the minimal rewards or bettering the earned-income revenue enhancement recognition, a hard currency fillip to be paid to workers gaining low-incomes.

- By raising the minimal pay to 47.25, approximately 18 % of the 12 million members of staff who were paid between the current minimal pay and $ 7.24 an hr rate were in households that had hard currency income under the federal poorness in 2004. All of the employees come under that pay scope, instead than they received the sum of $ 7.25 per hr, they would hold gotten about $ 11 billion in excess rewards in the same twelvemonth. About 15 % of those excess and extra rewards ( $ 1.6 billion ) would hold been received by employees in hapless households.

- Making better the earned income revenue enhancement recognition ( EITC ) : It all depends on how accurately Congress altered the jurisprudence, surely, by increasing revenue enhancement credits for childless workers and by besides increasing the credits for households with three or more childs, would hold cost up to $ 2.4 billion in 2004, with employees in households under the poorness line having $ 1.4 billion of the same.

The basic thought of both constructs is, households who received fewer sums would hold received a maximal revenue enhancement recognition, and those persons who earned more sums would hold received a smaller sum of revenue enhancement recognition. Families whose revenue enhancement recognition crosses the sum of revenue enhancement owed in world receive a cheque from the authorities for the difference. The earned income revenue enhancement recognition is fundamentally the same as a negative income revenue enhancement, excepting that the eligibility for the plan is restricted to the persons who work. Similar to the statement, both the negative income revenue enhancement and the minimal pay, the earned income revenue enhancement recognition topographic points extra income into the custodies of employees who worked at low rewards. However, unlike the lower limit pay, the earned income revenue enhancement recognition makes no inducement for employers to put off low-wage staff members ( Frank, & A ; Bernanke, 2007 ) .


As we have clearly discussed about both subjects, lower limit pay and earned income revenue enhancement recognition. We believe that the minimal pay is merely the 2nd best option to the earned income revenue enhancement recognition and other displacement to the worker belongs to the hapless household. I believe that the traditional analysis of the lower limit pay has a reasonable sum and an person would truly hold a penchant to see more transportation payments to people, who are working and less attempts to carry through the same aim through regulative decree.


Frank, Robert H. , & A ; Bernanke, Ben S. ( 2007 ) .Principles of economic sciences. New Delhi, India: Tata McGraw Hill Publishing Company Limited.

Neumark, David, & A ; Wascher, William L. ( 2008 ) .Minimum rewards. Massachusetts, USA: Massachusetts Institute of Technology.

Meyer, Bruce D. , & A ; Holtz-Eakin, Douglas. ( 2002 ) .Making work wage: the earned income revenue enhancement recognition and its impact on America 's households. New York, USA: Russell Sage Foundation Publications.

Cite this Page

Minimum wage versus Earned Income Tax Credit. (2018, Aug 16). Retrieved from

Don't let plagiarism ruin your grade

Run a free check or have your essay done for you

plagiarism ruin image

We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy

Save time and let our verified experts help you.

Hire writer