Why the Earned Income Tax Credit (EITC) Matters
Millions of people are working hard and still struggle to make ends meet. Working families living in poverty need both immediate relief and support that will help increase their children’s chances to move out of poverty in the future. The Earned Income Tax Credit (EITC) puts money back into the pockets of working families to help them to reduce the impact of poverty today— so that they are able to buy groceries, pay utility bills, and buy school supplies—and also helps them begin to break the cycle of poverty for future generations by getting additional education and training, better transportation, and saving for their children’s education.
Don Baylor, (formerly) Urban Institute
How do families use the EITC to improve their lives?
Anita Garrett, United Way Association of South Carolina
The Earned Income Tax Credit (EITC) is a federal tax credit for people who work and have low to moderate earned incomes. The EITC reduces the amount of federal taxes owed and may also provide a refund.
Because the EITC puts money back into the pockets of low-income families, the EITC has been called one of the largest and most effective poverty-reduction programs in the nation. Each year, the federal EITC lifts millions of people out of poverty. In 2015, the EITC lifted about 6.5 million people out of poverty, including about 3.3 million children.
In the 2015 tax year, working families with children that have annual incomes below about $39,000 to $53,300 (depending on marital status and the number of dependent children) may be eligible for the federal EITC. Also, working-poor people without children that have incomes below about $14,800 ($20,300 for a married couple) can receive a very small EITC. In the 2013 tax year, the most recent year for which the data are available, over 27 million working families and individuals received the EITC.
Read more about EITC eligibility in this report by the Center on Budget and Policy Priorities.
Research shows that the Earned Income Tax Credit (EITC) provides work, income, educational, and health benefits to its recipients and their children. In addition, recent research indicates the income from these tax credits leads to benefits at virtually every stage of life.
Read more about the impacts – including the two-generation impacts – of the EITC below:
- EITC and Child Tax Credit Promote Work, Reduce Poverty, and Support Children’s Development, CBPP, October 2015.
- Two Generation Approaches to Poverty Reduction and the EITC, EITC Funders Network, Grantmakers Income Security Taskforce (GIST), and Grantmakers for Children, Youth and Families (GCYF), Fall 2015.
- Research shows long-lasting benefits of EITC, CLASP, January 2013.
In conjunction with several sister affinity groups, the EITC Funders Network developed the Earned Income Tax Credit (EITC) Fund (The Fund) provides support to state-based policy and advocacy organizations building awareness of state EITCs. Threats to state EITC policies were identified as a focus for the first Rapid Response Fund in 2012. The Fund is guided by an advisory group and administered by GIST and the EITC Funders Network in partnership with the Center on Budget and Policy Priorities and the Hatcher Group. The Fund has three components:
- The EITC Rapid Response Fund (EITC RRF) was established in 2012 and focuses on quick infusions of support to help an existing effort overcome a communications challenge or opportunity. Awards are made on a rolling basis and range from $15,000-$30,000.
- The EITC Policy Development Fund (EITC PDF) was established in 2016 and provides multi-year support to state-based policy groups laying the groundwork to develop or improve state EITCs. Awards are made in the early Fall at $75,000 a year for two years.
- The EITC Campaign Fund (EITC CF) was established in 2017 and focuses on supporting a year-long effort where a window of opportunity to promote or defend a state EITC seems urgent. Awards are made in the early Fall and range from $30,000-$50,000.
Click here to learn more about the EITC Rapid Response Fund.
The Brookings Institution’s EITC Interactive provides users with access to IRS data on federal individual income tax filers. Data are available for all ZIP codes, cities, counties, metropolitan areas, states, state legislative districts, and congressional districts in the United States.
Across the country, community foundations are critical funding and program partners for EITC outreach, free tax preparation, and asset-building fields. In 2009 the EITC Funders Network interviewed staff of 15 community foundations in order to learn more about the strategies community foundations use in their EITC and free tax preparation work. These Briefs summarize our findings, share promising practices, and provide advice from community foundation staff on the most effective first steps in supporting an EITC effort in the community. Brief 1 focuses on getting started and Brief 2 focuses on launching and sustaining EITC related work.
The EITC Funders Network has collected evaluation strategies and tools from funders around the country, including a set of funder case studies and other tools including sample MOUs, client surveys, grantee reports and tax season debrief questions. When considering evaluating an EITC or free tax prep program, don’t re-create the wheel! If you’d like more evaluation tools, contact us at email@example.com.
- The IRS site provides information on volunteer tax preparation services and EITC eligibility criteria.
- The Center on Budget and Policy Priorities provides research on the EITC as well as overviews and policy basics.
- Tax Credits for Working Families includes resources at both the national and state level related to EITC and other tax credits for working families.
- The Brookings Institution profiles the economic and demographic characteristics of EITC-eligible taxpayers.