What is a Negative Income Tax?

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 Does a Negative Income Tax Work?

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.

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Why Does a Negative Income Tax Matter?

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.

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