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It’s tax time again! We’ve actually had our taxes done for months, and I noticed that we are getting a smaller refund than we did last year. See, in the year 2015, our adjusted gross income was $27,911. So, last year, we received a federal refund of $7,321 and a state refund of $2,655.
Well, the 2016 tax year, our adjusted gross income was $38,944. So, our federal refund was only $6,497 and our state refund was $1,107. This means, we got back $2,372 less this year than last, which, as you know, is a big deal to us (see a bit how it affects us here).
And the reason for the reduction in tax refund is because of the Earned Income Credit. With the Earned Income Credit, the less you make, the more you get back (assuming that you’re making something to begin with). Take a look at this chart, brought to us by Equitable Growth:
See how the amount kind of tapers off after we start earning $40,000 or more? (I’m married with more than 3 children, so you can look at the very top lines of the chart.)
This is something for us to be aware of, as our tax refunds mean a great deal to us at this time. I can kind of understand how people can get trapped in the welfare system, and not wanting to earn more because they’ll lose their benefits and stuff like that. I get it.
So, this got me to thinking more about how our financial picture will look when we start making more money. Which, I assume we will, because my husband’s business has been on a consistent upward trajectory since he started it, as you can see here:
As you know, we are also on food support. I looked up the income limits to food support and they are $53,760 annually (for a family of six). So, we could possibly be done with food support within a year or two.
We also get Medical Assistance through the state, so right now we aren’t paying anything for health insurance. It gets totally covered through Medical Assistance. I looked up the income limits for that and, for our family size, it is $43,464 for adults and $89,870 for our children. So, our kids will be taken care of for quite awhile (because I don’t see us making a jump to over $90,000 in income anytime soon), but Mr. Penny and I could be on the hook for health insurance anytime now. We would jump to MinnesotaCare, which is also health coverage through the state, but with a premium. The income limit to this (for our family size) is $65,160. If we made that much, our premium would be $80 a month per person, so $160 total.
So, let me run a some numbers here and see what we’re looking at.
Last year, we made $43,000. Add in the tax refunds (as well as a property tax refund) and the total amount of money we had was around $55,000. Add to that what we would have spent on food ($8,400) and we have a total of $63,400.
Now, let’s say we start making $65,000 a year. We would no longer get the Earned Income Credit, so our tax refund would be profoundly less. We’d still get a property tax refund, so let’s estimate $1,000 for that. We would no longer be getting food support, and we would be paying $1,920 in health insurance premiums every year (for two adults, through MinnesotaCare). So, our total here would be $64,080.
Did you see what just happened here? Even though we’d make $20,000 more each year, we’d be getting around the same amount of money that we’re getting now. Crazy, isn’t it?
This doesn’t mean that we’re going to try to stop making money, because, ultimately (even though I’m gracious and appreciative and all of that), it does feel better not to have to take support. This is just something that my family needs to be aware of, financially. It’s the paradox of the welfare system, you know?
How are your taxes treating you this year?