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Work credit could lift 125K people out of poverty in Puerto Rico

An estimated 125,000 people, or 54,920 families or taxpayers, could cross the poverty line in Puerto Rico by adopting the new Earned Income Tax Credit, Economist Daniel Santamaría-Ots, senior public policy analyst at Espacios Abiertos, confirmed upon analyzing tax returns filed for the year 2019.

The nonprofit released the results of the study entitled “The new work credit and its impact on poverty in Puerto Rico,” which estimated that the local EITC could help some 420,683 people (216,393 tax units) increase their levels of economic security. This is because while 54,920 taxpayers would cross the poverty line, another 161,473 taxpayers would have the possibility of being less poor in economic terms.

The economist made the estimates by incorporating the parameters of the new credit for work, which will come into effect in 2022, to the approximately 1 million forms filed in 2019 that Espacios Abiertos requested from the Puerto Rico Treasury Department.

This week, the data for taxable year 2020 was requested from the agency, to continue analyzing all the effects of the new credit, Espacios Abiertos officials said.

“The credit for work is an incentive to formal work. That it has the potential and capacity to lift nearly 55,000 families or 125,000 people out of the poverty line is a good start,” Santamaría-Ots said.

“Although there is still a long way to go to encourage formal work with decent wages in Puerto Rico, the credit — coupled with the increase in the minimum wage — points in the right direction,” he said.

The economist explained that the increase in the number of taxpayers that could benefit from the new credit is due to three factors: the addition of young people between 19 and 26 years of age (76,426 taxpayers); the addition of self-employed (13,238 taxpayers); and the expansion of the taxpayer base by increasing the maximum income limit of applicants for the new credit according to the new law (121,885 taxpayers) who did not qualify in 2019.

In other words, if the parameters of the new credit that will take effect in 2022 are applied to the tax returns that were filed in taxable year 2019, 211,549 taxpayers (349,152 people) could receive the benefit of the credit in addition to the 254,757 taxpayers (496,149 people) that qualified in 2019, impacting a total potential of 466,306 tax units (845,301 people) in Puerto Rico, he explained.

The new average work credit would be approximately $1,800 per taxpayer if the demographic and socioeconomic composition of the tax units for the year 2019 is maintained, Santamaría-Ots added.

An X-ray of taxable year 2019 showed that 13,937 people or 6,230 taxable units (families) managed to cross the poverty line upon receiving the credit, which averaged 450. That year, 87.67% of the tax units that received the work credit had incomes of less than $ 20,000 and 76.88% work in the private sector, the study conducted by Espacios Abiertos concluded.

In addition, 54.89% of the taxpayers who received the credit did not have dependents and 48.8% fluctuated between the ages of 31 and 45 years. About 49.72% of the taxpayers who received the credit for work were identified with the female sex (average credit of $468) and 49.74% with the male (average credit of $433).

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This story was written by our staff based on a press release.

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