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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

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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 2016, an individual with no custodial children who earns less than $14,880 can receive up to $506, while a married couple with three or more children making less than $53,505 qualify to receive up to $6,269. States that offer EITCs have various eligibility rules; similar to the federal EITC, refund amounts vary by income (NCSL-EITC).

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 (NBER-Hoynes 2016, Strully 2010, UW IRP-Dahl 2009, Hotz 2003, Ellwood 2000, Meyer 2001, Eissa 1996).

The EITC increases employment for single-parent households (Simpson 2010), especially those headed by mothers (NBER-Hoynes 2015, Moulton 2016, Strully 2010, UW IRP-Dahl 2009, Ellwood 2000, Meyer 2001, Eissa 1996). It may not increase employment for two-parent families with very low incomes, however, especially those who would lose eligibility for an EITC refund if income increased (Hotz 2003, Ellwood 2000). The EITC may decrease employment for secondary earners in married couples and has demonstrated no impact, positive or negative, on men’s employment (NBER-Hoynes 2016). 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).

Receipt of the EITC appears to decrease the incidence of low birthweight births (Hamad 2015, Strully 2010), particularly among black mothers (Hoynes 2015), and is associated with improved maternal (Evans 2014) and child health, including reduced infant mortality (Arno 2009) and increased breastfeeding rates (Hamad 2015). Expansions of state EITCs may improve the health of children ages 6-14, and support transitions from public to private health insurance (Baughman 2016). A study of the 1990 expansion of the federal EITC suggests increasing the EITC may improve mental health for mothers who are married (Boyd-Swan 2016).

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 may also reduce children’s problem behaviors (Hamad 2016) and child neglect (Berger 2016).

The EITC appears to reduce poverty, with the largest effects among single parent families (NBER-Hoynes 2015, Upjohn-Hardy 2015). A 2015 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). State EITC supplements appear to be cost-effective, increasing quality of life and longevity among recipients (Muennig 2016).

The EITC is often used to meet short- and medium-term needs (Brookings-Holt 2006). Research suggests that recipients generally use EITC refunds to meet basic needs, repair vehicles (Simpson 2010, CBPP-Greenstein 2005), and repay debt (Shaefer 2013, Simpson 2010, CBPP-Greenstein 2005). Some recipients also use it to obtain additional education or training (CBPP-Greenstein 2005).

EITCs may have a positive impact on state and local economies through increased sales and jobs (CDC-EITC). Efforts to increase awareness of the EITC, such as direct mailings, may increase take up (Bhargava 2015). 

Implementation

United States

As of 2017, 29 states and the District of Columbia offer an EITC that is a percentage of the federal credit; 24 are refundable (TCWF-State tax credits). In 2016, more than 26 million families received the EITC (TPC-Maag 2017); however, about 20% of eligible workers did not claim the EITC (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).

Innovative programs to increase EITC uptake include Boston Medical Center’s StreetCred, which is embedded in pediatric primary clinics (Hole 2017).

Wisconsin

Wisconsin has a state refundable EITC available to residents who have at least one qualifying child and qualify for the federal EITC. Wisconsin’s EITC is set at 4% of the federal credit for 1 child, 11% for 2 children, and 34% for three children (WI DOR-EITC). In 2015, 391,000 Wisconsin households received the federal EITC (NCSL-EITC).

Implementation Resources

BMC-StreetCred - Boston Medical Center (BMC). StreetCred: Accessible resources and asset building for low-income, working families raising children in America. Accessed on July 27, 2017
IRS-EITC Toolkits - Internal Revenue Service (IRS). Earned income tax credit (EITC) & other refundable credits: Partner toolkit. Accessed on July 26, 2017

Citations - Description

NCSL-EITC - National Conference of State Legislatures (NCSL). Tax credit for working families: Earned income tax credit (EITC). 2013. Accessed on July 27, 2017

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 July 27, 2017
Baughman 2016 - Baughman RA, Duchovny N. State Earned Income Tax Credits and the production of child health: Insurance coverage, utilization, and health status. National Tax Journal. 2016;69(1):103-132. Accessed on July 26, 2017
Berger 2016* - Berger LM, Font SA, Slack KS, Waldfogel J. Income and child maltreatment in unmarried families: Evidence from the earned income tax credit. Review of Economics of the Household. 2016:1-28. Accessed on July 26, 2017
Bhargava 2015 - Bhargava S, Manoli D. Psychological frictions and the incomplete take-up of social benefits: Evidence from an IRS field experiment. American Economic Review. 2015;105(11):3489-3529. Accessed on July 26, 2017
Boyd-Swan 2016* - Boyd-Swan C, Herbst CM, Ifcher J, Zarghamee H. The earned income tax credit, mental health, and happiness. Journal of Economic Behavior & Organization. 2016;126:18-38. Accessed on July 26, 2017
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 July 27, 2017
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 July 27, 2017
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 July 27, 2017
CDC-EITC - Centers for Disease Control and Prevention (CDC), Office of the Associate Director for Policy. Earned Income Tax Credits (EITC). Accessed on July 26, 2017
CDF 2015 - Ending child poverty now. Washington, DC: Children's Defense Fund (CDF); 2015. Accessed on July 27, 2017
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 July 27, 2017
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 July 27, 2017
Evans 2014 - Evans WN, Garthwaite CL. Giving mom a break: The impact of higher EITC payments on maternal health. American Economic Journal: Economic Policy. 2014;6(2):258-290. Accessed on July 26, 2017
Hamad 2015 - Hamad R, Rehkopf DH. Poverty, pregnancy, and birth outcomes: A study of the earned income tax credit. Paediatric and Perinatal Epidemiology. 2015;29(5):444-452. Accessed on July 26, 2017
Hamad 2016 - Hamad R, Rehkopf DH. Poverty and child development: a longitudinal study of the impact of the Earned Income Tax Credit. American Journal of Epidemiology. 2016;183(9):775-784. Accessed on July 26, 2017
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 July 27, 2017
Hoynes 2015 - Hoynes H, Miller D, Simon D. Income, the Earned Income Tax Credit, and infant health. American Economic Journal: Economic Policy. 2015;7(1):172-211. Accessed on July 26, 2017
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 July 27, 2017
Moulton 2016 - Moulton JG, Graddy-Reed A, Lanahan L. Beyond the EITC: The effect of reducing the Earned Income Tax Credit on labor force participation. National Tax Journal. 2016;69(2):261-284. Accessed on July 26, 2017
Muennig 2016* - Muennig PA, Mohit B, Wu J, Jia H, Rosen Z. Cost effectiveness of the Earned Income Tax Credit as a health policy investment. American Journal of Preventive Medicine. 2016;51(6):874-881. Accessed on July 26, 2017
NBER-Hoynes 2015 - Hoynes HW, Patel AJ. Effective policy for reducing inequality? The earned income tax credit and the distribution of income. National Bureau of Economic Research (NBER). 2015: Working Paper 21340. Accessed on July 26, 2017
NBER-Hoynes 2016 - Hoynes H, Rothstein J. Tax Policy toward Low-Income Families. National Bureau of Economic Research (NBER). 2016: Working Paper 22080. Accessed on July 21, 2017
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 July 27, 2017
Shaefer 2013* - Shaefer HL, Song X, Williams Shanks TR. Do single mothers in the United States use the Earned Income Tax Credit to reduce unsecured debt? Review of Economics of the Household. 2013;11(4):659-680. Accessed on July 26, 2017
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 July 27, 2017
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 July 27, 2017
Upjohn-Hardy 2015 - Hardy BL, Muhammad D, Samudra R. The Effect of the Earned Income Tax Credit in the District of Columbia on Poverty and Income Dynamics. W.E. Upjohn Institute for Employment Research. 2015: Working Paper 15-230. Accessed on July 26, 2017
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 July 27, 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 July 27, 2017

Citations - Implementation

Hole 2017* - Hole MK, Marcil LE, Vinci RJ. Improving access to evidence-based antipoverty government programs in the United States: A novel primary care initiative. JAMA Pediatrics. 2017;171(3):211-212. Accessed on July 26, 2017
NCSL-EITC - National Conference of State Legislatures (NCSL). Tax credit for working families: Earned income tax credit (EITC). 2013. Accessed on July 27, 2017
TCWF-State tax credits - Tax Credits for Working Families (TCWF). State tax credits. Accessed on July 27, 2017
TPC-Maag 2017 - Maag E. Refundable credits: The earned income tax credit and the child tax credit. Washington, DC: Urban-Brookings Tax Policy Center (TPC); 2017. Accessed on July 21, 2017
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
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 July 27, 2017
WI DOR-EITC - Wisconsin Department of Revenue (WI DOR). Individual income tax: Earned Income Tax Credit (EITC). Accessed on July 27, 2017

Page Last Updated

July 27, 2017

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