O.K. We all know that the Earned Income Tax Credit wipes out all or part of a low wage earners Federal tax obligation. But does it also reduce or eliminate a low wage workers Payroll tax obligation?
Yes. And then some.
That’s exactly what the initial intent of the earned income credit was–to offset the payroll tax, no more no less. Of course, through the 90s it was expanded greatly. I don’t recall the exact figures (and I’m not at the office and can’t be bothered to do a search), but with one dependent, the maximum credit is around 36% of earned income; with two or more dependents, it’s over 40% of earned income (note that it was expanded to those without dependents a few years ago; the percentage for them is at or around 7.65%).
Since the credit is refundable, it more than makes up for income taxes (if any) and payroll taxes for a significant number of recipients.