Social & Economic Factors Education Employment Income Family & Social Support Community Safety Search Policies & Programs

hints
Display All Policies & Programs

Earned Income Tax Credit (EITC)

Health Factors: Income
Decision Makers: State Government Federal Government
Evidence Rating: Scientifically Supported
Population Reach: 10-19% of WI's population
Impact on Disparities: Likely to decrease disparities

Is this program or policy in use in your community? Tell us about it.

Description

The Earned Income Tax Credit (EITC) is a refundable income tax credit for low to moderate income working individuals and families. EITCs are offered by the federal government and many state governments. Federal earned income limits vary based on family size; in 2014, an individual with no custodial children must earn less than $14,590 to qualify, while a married couple with three or more children may earn up to $52,427 (NCSL-EITC). States that offer EITCs have various eligibility rules; similar to the federal EITC, refund amounts vary by income.

Expected Beneficial Outcomes

Increased employment
Increased income
Increased academic achievement
Improved maternal health
Improved birth outcomes

Evidence of Effectiveness

There is strong evidence that the Earned Income Tax Credit (EITC) increases employment and income for participating families (Strully 2010,UW IRP-Dahl 2009, Hotz 2003, Ellwood 2000, NBER-Meyer 2000, Meyer 2001, Eissa 1996).

The EITC increases employment for single-parent households (Simpson 2010), especially those headed by mothers (Strully 2010, UW IRP-Dahl 2009, Ellwood 2000, NBER-Meyer 2000, Meyer 2001, Eissa 1996). It may not increase employment for very low income two-parent families, especially those who would lose eligibility for an EITC refund if family income increased (Hotz 2003, Ellwood 2000). While families in large cities are the most likely to earn the credit (Brookings-Berube 2004, Brookings-Holt 2006), the EITC is also a substantial source of income support for rural residents (USDA-Durst 2011, Simpson 2010, Brookings-Berube 2004).

Increasing family income through employment and earnings supplements has been shown to have positive effects on children, most consistently on school achievement among elementary school students (NCCP-Cauthen 2002). Receipt of the EITC is also associated with improved maternal (NBER-Evans 2010) and child health, including reduced infant mortality (Arno 2009) and incidence of low birthweight births (NBER-Hoynes 2012, Strully 2010).

The EITC is often used to meet short- and medium-term needs (Brookings-Holt 2006). Research suggests that recipients generally use the EITC to meet basic needs, repair vehicles, and repay debt (Simpson 2010, CBPP-Greenstein 2005). Some recipients also use it to obtain additional education or training (CBPP-Greenstein 2005).

A recent report projects that increasing the federal EITC for lower income families with children would reduce child poverty by 9% (1 million children). This increase would cost approximately $8.2 billion. Expanding state and local EITCs is also likely to reduce child poverty (CDF 2015). Some researchers also suggest expanding the EITC to provide benefits to very low earning childless adults and non-custodial parents (Edelman 2009).

Implementation

United States

As of 2015, twenty five states and the District of Columbia offer an EITC that is a percentage of the federal credit, but credits differ in eligibility requirements and whether the EITC is refundable (NCSL-EITC).

The state of New York and Washington DC have noncustodial parent EITCs for those who work and pay full child support (Wheaton 2010). New York’s noncustodial parent EITC appears to have increased employment among non-custodial parents as well as the percentage of noncustodial parents paying child support in full (Urban-Nichols 2012). It is set to sunset in 2015 (Urban-Sorensen 2013).

Wisconsin

Wisconsin has a state refundable EITC available to residents who have at least one qualifying child and qualify for the federal EITC (WI DOR-EITC).

Citations - Description

NCSL-EITC - National Conference of State Legislatures (NCSL). Tax credit for working families: Earned income tax credit. 2013. Accessed on November 24, 2015

Citations - Evidence

Arno 2009 - Arno PS, Sohler N, Viola D, Schechter C. Bringing health and social policy together: The case of the Earned Income Tax Credit. Journal of Public Health Policy. 2009;30(2):198-207. Accessed on November 23, 2015
Brookings-Berube 2004 - Berube A, Tiffany T. The “state” of low-wage workers: How the EITC benefits urban and rural communities in the 50 states. Washington, DC: Brookings Institution; 2004. Accessed on December 7, 2015
Brookings-Holt 2006 - Holt S. The Earned Income Tax Credit at age 30: What we know. Washington, DC: Brookings Institution; 2006: Research Brief. Accessed on November 30, 2015
CBPP-Greenstein 2005 - Greenstein R. The Earned Income Tax Credit: Boosting employment, aiding the working poor. Washington, DC: Center on Budget and Policy Priorities (CBPP); 2005. Accessed on November 25, 2015
CDF 2015 - Ending child poverty now. Washington, DC: Children's Defense Fund (CDF); 2015. Accessed on July 12, 2017
Edelman 2009 - Edelman P, Greenberg M, Holt S, Holzer H. Expanding the EITC to help more low-wage workers. Washington, DC: Georgetown Center on Poverty, Inequality and Public Policy, Urban Institute; 2009. Accessed on December 28, 2015
Eissa 1996* - Eissa N, Liebman JB. Labor supply response to the Earned Income Tax Credit. Quarterly Journal of Economics. 1996;111(2):605–37. Accessed on January 14, 2016
Ellwood 2000* - Ellwood DT. The impact of the Earned Income Tax Credit and social policy reforms on work, marriage, and living arrangements. National Tax Journal. 2000;53(4 Part 2):1063–1105. Accessed on January 12, 2016
Hotz 2003 - Hotz VJ, Scholz JK. The Earned Income Tax Credit. In: Means-tested transfer programs in the United States. (Moffitt RA, ed.). University of Chicago Press; 2003. Accessed on November 24, 2015
Meyer 2001* - Meyer BD, Rosenbaum DT. Welfare, the Earned Income Tax Credit, and the labor supply of single mothers. Quarterly Journal of Economics. 2001;116(3):1063–1114. Accessed on November 24, 2015
NBER-Evans 2010 - Evans WN, Garthwaite CL. Giving Mom a break: The impact of higher EITC payments on maternal health. National Bureau of Economic Research (NBER). 2010: Working Paper 16296. Accessed on March 1, 2016
NBER-Hoynes 2012 - Hoynes HW, Miller DL, Simon D. Income, the Earned Income Tax Credit, and infant health. National Bureau of Economic Research (NBER). 2012: Working Paper 18206. Accessed on November 24, 2015
NBER-Meyer 2000 - Meyer BD, Rosenbaum DT. Making single mothers work: Recent tax and welfare policy and its effects. National Bureau of Economic Research (NBER). 2000: Working Paper 7491. Accessed on November 23, 2015
NCCP-Cauthen 2002 - Cauthen NK. Improving children’s economic security: Research findings about increasing family income through employment. New York: National Center for Children in Poverty (NCCP); 2002. Accessed on March 1, 2016
Simpson 2010* - Simpson NB, Tiefenthaler J, Hyde J. The impact of the Earned Income Tax Credit on economic well-being: A comparison across household types. Population Research and Policy Review. 2010;29(6):843-64. Accessed on May 24, 2016
Strully 2010 - Strully KW, Rehkopf DH, Xuan Z. Effects of prenatal poverty on infant health: State Earned Income Tax Credits and birth weight. American Sociological Review. 2010;75(4):534–62. Accessed on November 24, 2015
USDA-Durst 2011 - Durst R, Farrigan T. Federal tax policies and low-income rural households. Washington, DC: Economic Research Service (ERS), US Department of Agriculture (USDA); 2011. Accessed on February 10, 2017
UW IRP-Dahl 2009 - Dahl M, DeLeire T, Schwabish J. Stepping stone or dead end? The effect of the EITC on earnings growth. Madison: Institute for Research on Poverty (IRP), University of Wisconsin-Madison; 2009: Discussion Paper 1365-09. Accessed on November 10, 2015

Citations - Implementation

NCSL-EITC - National Conference of State Legislatures (NCSL). Tax credit for working families: Earned income tax credit. 2013. Accessed on November 24, 2015
Urban-Nichols 2012 - Nichols A, Sorensen E, Lippold K. The New York noncustodial parent EITC: Its impact on child support payments and employment. Washington, DC: Urban Institute; 2012. Accessed on November 23, 2015
Urban-Sorensen 2013 - Sorensen E. Tax credits and job-oriented programs help fathers find work and pay child support. Washington, DC: Urban Institute; 2013. Accessed on November 23, 2015
Wheaton 2010 - Wheaton L, Sorensen E. Extending the EITC to noncustodial parents: Potential impacts and design considerations. Journal of Policy Analysis and Management. 2010;29(4):749-68. Accessed on November 17, 2015
WI DOR-EITC - Wisconsin Department of Revenue (WI DOR). Individual income tax: Earned Income Tax Credit (EITC). Accessed on February 20, 2017

Page Last Updated

March 10, 2015

* Journal subscription may be required for access.