Negative Income Tax
What it is:
Negative income tax refers to transfer payments given to families whose reported household income fall below a predetermined amount and qualifies them for a supplemental payment from the government.
How it works (Example):
For families whose household income qualifies as insufficient to fulfill their needs, the government provides a subsidy to help ensure their welfare. This assistance is referred to as a negative income tax because the payment schedule is reversed – the government pays the taxpayer.
Why it Matters:
It is not uncommon for American families to generate a household income which entitles them to pay little or no tax. In certain cases, many families report a level of income so low that tax law stipulates that the government provide them with financial assistance in order to ensure that their needs are met adequately.