The critical importance of the Earned Income Tax Credit (EITC)

 

Today is the 16th annual Earned Income Tax Credit (EITC) Awareness Day. This is a time to bring attention to the critical support the EITC and other refundable tax credits provide to families and individuals with low to moderate incomes.

This support has become even more vital during the pandemic, when Congress enacted a temporary expansion of the EITC for working adults without children. Even before this expansion, in 2020, about 25 million working households claimed nearly $60 billion in federal EITCs.

EITC Awareness Day provides an opportunity to help connect more eligible people to the EITC. That includes over 17 million adults who work in low-wage jobs, don’t have children, and would benefit from the expanded EITC. The American Rescue Plan Act nearly temporarily tripled the maximum credit value, increasing it from $538 to $1,502. The Rescue Plan also expanded the age range of eligible workers to include those aged 19-24 (excluding students aged 19-23 who attended school at least half time for at least five months of the tax year), as well as people aged 65 and older. Additionally, homeless youth and former foster youth who are at least 18 years old and who work are eligible to claim this credit, even if they are enrolled in school. Prior to this expansion, the federal tax code taxed an estimated 5.8 million people aged 19 to 65 into, or deeper into, poverty in part because their EITC was so small. This is why extending the expansion of the EITC for working adults without children is so important.

Roughly 80-85 percent of people eligible for the EITC for families with children claim it, but many fewer people claim the EITC for working adults without children (an estimated 65 percent), according to IRS estimates for tax year 2016. Awareness and outreach are particularly essential to reach people newly eligible for the expanded EITC, those who were eligible for a very small credit in the past, and people who may have missed out on other tax credit expansions under the Rescue Plan, such as the third round of economic stimulus payments or the advance Child Tax Credit payments.

Center on Budget and Policy Priorities

Also see:

Build Back Better’s Child Tax Credit Changes Would Protect Millions From Poverty — Permanently

NOVEMBER 11, 2021