Earned Income Tax Credit (EITC)

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. The value of the EITC changes yearly; for the 2017 tax year, an individual with no custodial children who earns 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 (NCSL-EITC).

Expected Beneficial Outcomes (Rated)

  • Increased employment

  • Increased income

  • Improved birth outcomes

Other Potential Beneficial Outcomes

  • Increased academic achievement

  • Improved maternal health

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, , , ) and improves birth outcomes (, Hamad 2015, Hoynes 2015, Strully 2010).

The EITC increases employment for single-parent households through increases in both labor force participation and hours worked (), especially in households headed by mothers (NBER-Hoynes 2015, Moulton 2016, Strully 2010, UW IRP-Dahl 2009, , , ). However, it may not increase labor force participation for married couples with very low incomes, especially those who would lose eligibility for an EITC refund if income increased (Hotz 2003, ). The EITC can also decrease labor force participation and hours worked among married mothers (NBER-Hoynes 2016, Hotz 2003, ). It has demonstrated no impact, positive or negative, on the likelihood that men work or the number of hours they work (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 in rural areas (USDA-Durst 2011, , Brookings-Berube 2004).

Availability of a generous EITC when women have young children may, in the long-term, increase earnings and hours worked for single women but decrease earnings and hours worked for married women (). 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 may provide an income cushion for skilled workers and married couples but does not appear to provide the same benefit to single parents with children (). 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 (MDRC-Miller 2017).

Receipt of the EITC decreases the incidence of low birthweight births (, Hamad 2015, Strully 2010), particularly among black mothers (Hoynes 2015). Effects may be larger with more generous EITCs (). EITC receipt is associated with improved maternal (Evans 2014) and child health (, Arno 2009), 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 (). State level EITCs may reduce recidivism among women ().

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). EITC expansion may improve the quality of home environments () and decrease children’s entry into foster care (). The EITC may reduce child neglect in disadvantaged families (). A study of state level refundable EITCs suggest it may decrease abusive head trauma in children under 2 years old (). Recent studies suggest that increases in the EITC are associated with reductions in new marriages but have no impact on divorce rates (). Single mothers are less likely to marry and more likely to cohabit if marriage will lead to the loss of EITC benefits, particularly mothers with lower incomes, who have never been married, or are racial minorities ().

The EITC appears to reduce poverty, with the largest effects among single parent families (NBER-Hoynes 2015, Upjohn-Hardy 2015) and those nearest the poverty line (NBER-Hoynes 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 ().

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 (, CBPP-Greenstein 2005), and repay debt (, , 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).

Impact on Disparities

Likely to decrease disparities

Implementation Examples

As of 2018, 29 states and Washington DC offer an Earned Income Tax Credit (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).

The Volunteer Income Tax Assistance (VITA) program provides free tax preparation for people with low incomes, those with disabilities, and those with limited English proficiency across the country, which includes helping tax filers claim the EITC (IRS-VITA). Innovative programs to increase EITC uptake include Boston Medical Center’s StreetCred, which is embedded in pediatric primary clinics ().

Implementation Resources

IRS-EITC Toolkits - Internal Revenue Service (IRS). Earned Income Tax Credit (EITC) & other refundable credits: Partner toolkit.

BMC-StreetCred - Boston Medical Center (BMC). StreetCred: Accessible resources and asset building for low-income, working families raising children in America.

Citations - Evidence

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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.

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.

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.

Brookings-Holt 2006 - Holt S. The Earned Income Tax Credit at age 30: What we know. Washington, DC: Brookings Institution; 2006: Research Brief.

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.

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.

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.

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.

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.

Eissa 1996* - Eissa N, Liebman JB. Labor supply response to the Earned Income Tax Credit. Quarterly Journal of Economics. 1996;111(2):605–37.

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.

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.

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.

CDF 2015 - Ending child poverty now. Washington, DC: Children's Defense Fund (CDF); 2015.

NBER-Hoynes 2016 - Hoynes H, Rothstein J. Tax policy toward low-income families. National Bureau of Economic Research (NBER). 2016: Working Paper 22080.

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.

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.

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.

CDC-EITC - Centers for Disease Control and Prevention (CDC), Office of the Associate Director for Policy. Earned Income Tax Credits (EITC).

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.

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.

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.

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.

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.

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.

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.

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.

Berger 2017* - 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. 2017;15(4):1345-1372.

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.

Averett 2018* - Averett S, Wang Y. Effects of higher EITC payments on children's health, quality of home environment, and noncognitive skills. Public Finance Review. 2018;46(4):519-557.

Biehl 2018* - Biehl AM, Hill B. Foster care and the Earned Income Tax Credit. Review of Economics of the Household. 2018;16(3):661-680.

Jones 2018* - Jones LE, Michelmore K. The impact of the Earned Income Tax Credit on household finances. Journal of Policy Analysis and Management. 2018;37(3):521-545.

Herbst 2011a* - Herbst C. The impact of the Earned Income Tax Credit on marriage and divorce: Evidence from flow data. Population Research and Policy Review. 2011;30(1):101-128.

Markowitz 2017* - Markowitz S, Komro KA, Livingston MD, Lenhart O, Wagenaar AC. Effects of state-level Earned Income Tax Credit laws in the US on maternal health behaviors and infant health outcomes. Social Science and Medicine. 2017;194(12):67-75.

Klevens 2017* - Klevens J, Schmidt B, Luo F, Xu L, Ports KA, Lee RD. Effect of the Earned Income Tax Credit on hospital admissions for pediatric abusive head trauma, 1995-2013. Public Health Reports. 2017;132(4):505-511.

NBER-Neumark 2018* - Neumark D, Shirley P. The long-run effects of the Earned Income Tax Credit on women's earnings. National Bureau of Economic Research Working Paper. 2018.

Michelmore 2018* - Michelmore K. The Earned Income Tax Credit and union formation: The impact of expected spouse earnings. Review of Economics of the Household. 2018;16(2):377-406.

Bitler 2017* - Bitler M, Hoynes H, Kuka E. Do in-work tax credits serve as a safety net? Journal of Human Resources. 2017;52(2):319-350.

NBER-Agan 2018* - Agan AY, Makowsky, MD. The minimum wage, EITC, and criminal recidivism. National Bureau Of Economic Research. 2018.

MDRC-Miller 2017 - Miller C, Katz LF, Azurdia G, Isen A, Schultz C. Expanding the Earned Income Tax Credit for workers without dependent children. MDRC. 2017.

Citations - Implementation Examples

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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.

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.

NCSL-EITC - National Conference of State Legislatures (NCSL). The state of the Earned Income Tax Credit (EITC). 2018.

TCWF-State tax credits - Tax Credits for Working Families (TCWF). State tax credits.

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.

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.

IRS-VITA - Free tax return preparation for qualifying taxpayers. Internal Revenue Service. 2018.

Date Last Updated

Oct 30, 2018