negative income tax

noun
Updated on: 13 Oct 2017

Definition of negative income tax

:a system of federal subsidy payments to families with incomes below a stipulated level

First Known Use of negative income tax

1950


Financial Definition of NEGATIVE INCOME TAX

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

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.

[InvestingAnswers Feature: The Most Important Tax Changes to Know Before Filing Your Tax Return]

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.

[InvestingAnswers Feature: How to Avoid an IRS Audit]


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