Lifting Millions out of Poverty: The Earned Income Tax Credit

Posted December 28, 2013
By the Annie E. Casey Foundation
Blog liftingmillionsoutofpoverty 2013

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.

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