Lifting Millions out of Poverty: The Earned Income Tax Credit

Posted December 27, 2013, By the Annie E. Casey Foundation

For millions of Americans, having a job does not translate into financial stability.  Indeed, many breadwinners work but earn too little to provide adequately for their families. For many, the Earned Income Tax Credit (EITC) is a critically important lifeline.

Created by Congress in 1975 and expanded in subsequent years, the EITC offsets some or all of a family’s federal income taxes and, in many cases, provides a supplemental source of income to offset sales and payroll taxes. The federal EITC lifted 6.6 million Americans, half of them children, out of poverty in 2012, making it the nation’s largest anti-poverty program. In all that year, more than 27 million workers received nearly $62 billion in EITC refunds, with an average credit of more than $2,200.

Today, 25 states and the District of Columbia have created an EITC that provides state tax relief to low-income working families, as have a handful of local governments.

The National Community Tax Coalition has documented how the EITC helps working people around the country. For example, a young mother of a 4-year-old son is working full-time – including overtime – as a licensed practical nurse while also studying to become a registered nurse, a position that will pay her significantly more. Her EITC refund will help cover her expenses, especially child care and books and supplies for her schooling.

While the benefits to working families can be significant, many Americans fail to take advantage of the EITC when they file their federal and state tax returns. The Casey Foundation has been a major supporter of efforts to expand the number of families filing for the EITC. 

Casey has also supported new tools to encourage families to save some of their EITC refunds to improve their long-range finances.

Tax Credits for Working Families provides news and resources about the EITC and related subjects, including the child tax credit, another important benefit for working families.