Property Tax Circuit Breaker

A Property Tax Circuit Breaker is a tax refund in the United States given to low income individuals and families whose property tax liability is a large percentage of their yearly income. The term was coined by John Shannon of the Advisory Commission on Intergovernmental Relations in the 1960s. There are currently 18 states who use a wide scope of programs to relieve the property tax burden for low income individuals and families. Just as an electrical circuit breaker will prevent an electric circuit from being overloaded with energy, these programs prevent low income households from being overloaded with tax burden. Like all tax refunds, these programs require low income households to pay the entire property tax up-front then a credit or refund is given during the income tax processing. A popular feature of the property tax circuit breaker is that rather than limiting the amount of money someone pays in property taxes, relief is given after the property taxes are paid. This is done so that the locality who is in charge of levying the taxes and utilizing the revenue does not see a decrease in revenue from property taxes, rather the state government passes down relief for those property taxes that are paid.
Types of Property Tax Circuit Breakers.
Threshold Circuit Breakers: Threshold circuit breakers are the most popular type utilizing a specific threshold percentage that property taxes must exceed before any tax relief is available. With this type of circuit breaker relief would be equal to the amount of property taxes paid above the threshold. There are single-threshold formulas where a single threshold is established to focus on tax relief, and there is also multiple-threshold formulas where the relief can be applied more progressively in an incremental fashion. The multiple-threshold formula is more common than the single-threshold formula.
Sliding Scale Circuit Breakers: These circuit breakers utilize income brackets to formulate a reduction in property taxes regardless of the amount of property tax. The tax relief will be the same within each tax bracket and will decrease incrementally with each increase in the income bracket so that those with the lowest of incomes will receive the highest of property tax reductions. An example of this method would be: A 50% reduction for the first $10,000 income, a 40% reduction for the next $5,000 income, a 30% reduction for the next $5,000 in income. This sliding scale would eventually stop at a certain income level where a property tax reduction would possibly be deemed unnecessary.
Eligibility for Property Tax Circuit Breaker.
There are currently 18 different programs that provide property tax relief in the United States. The programs and their eligibility vary by state. The states with these programs limit eligibility in three ways; whether the tax payer is a renter or a homeowner, whether the tax payer is elderly or disabled, and the income level of the tax payer. Circuit breakers are offered to renters and homeowners in 16 states, only home owners in 1 state and only renters in 1 state; in 8 states the programs are limited to only the elderly or disabled and in all 18 states there is a maximum income level after which a taxpayer no longer qualifies for a refund. Although some states have a much more generous income ceiling, participation in these programs is limited by a requirement that the property tax liability be a certain percentage of the taxpayers yearly income. In turn, it is believed by researchers that this type of tax relief is more beneficial to low income families rather than middle or high income families.