What Is Earned Income Tax Credit (EITC) Program?
The Earned Income Tax Credit (EITC) is a refundable income tax credit for low to moderate income working individuals and families. EITC's refunds are offered by the federal government and many state governments. Federal earned income tax refunds' limits vary based on family size. The value of the EITC changes yearly: for the 2017 tax year, an individual with no custodial children who earned less than $15,010 can receive up to $510, while a married couple with three or more children making less than $53,930 qualify to receive up to $6,318. States that offer EITCs have various eligibility rules; similar to the federal EITC, refund amounts vary by income. Check your state’s EITC website for the guidelines. As of 2018, 29 states and Washington DC offer the EITC that is a percentage of the federal credit; 24 are refundable. In 2016, more than 26 million families received the EITC; however, about 20% of eligible workers did not claim the EITC. I ran a Volunteer Income Tax Assistance (VITA) program helping tax filers claim the EITC providing free tax preparation for people with low incomes, those with disabilities, and those with limited English proficiency in metro Washington DC for several years. I am quite aware of the number of people who are not knowledgeable about the program or the effectiveness of it, as a result, they lose out on a source of free income meant to help their economic situations. There is strong evidence that the EITC increases employment and income for participating families. It increases employment for single-parent households through increases in both labor force participation and hours worked writes Simpson N.B., Tiefenthaler J., and Hyde J. on The impact of the Earned Income Tax Credit on economic well-being: A Comparison across Household Types (journal subscription may be required for access), especially in households headed by mothers. While families in large cities are the most likely to earn the credit, the EITC is also a substantial source of income support in rural areas. Refundable EITCs may increase financial stability for single mothers with low incomes through increases in earnings, savings, and reductions in unsecured debt. In times of high unemployment, the EITC has provide an income cushion for skilled workers and married couples. An early assessment of the Paycheck Plus program, an EITC-like program for workers without dependent children, suggests that expanding the amount of the credit has the potential to increase earnings, employment, tax filing, and child support payments. The EITC appears to reduce poverty, with the largest effects among single-parent families. A 2015 report projects that increasing the federal EITC for lower-income families with children would reduce child poverty by 9% (1 million children). Many state and local EITCs are expanding to address the growing needs as the program continues to demonstrate its likelihood to reduce child poverty. I found when running the VITA program in metro DC, the EITC is often used to meet short-term and medium-term needs. Recipients generally use EITC refunds to meet basic needs, repair vehicles, and repay debts. Some recipients also use it to obtain additional education or training. Efforts to increase awareness of the EITC, such as direct mailings, has started to increase affected groups taking it up. If you qualify for EITC, do consider filing for the tax credit refund in 2019. Any of the free tax preparers or programs are aware of the program and can assist. Have you read my article about Planting Seeds of a Bright Future? Read the full article
