The Earned Income Tax Credit (EITC) and low-income Child Tax Credit (CTC) are among the strongest tools to promote work and help workers with children escape poverty and achieve self-sufficiency. But we need to do more. The EITC leaves out millions of low-wage workers not raising children in the home — a group that includes young people just starting out, adults with grown children, and non-custodial parents. As a result, this lone group of people are taxed into or deeper into poverty.
The Earned Income Tax Credit is a federal tax credit for low- and moderate-income working families and individuals. It is designed to encourage and reward work, offset federal payroll and income taxes, and raise living standards. To claim the credit, a taxpayer must have earnings from a job. The EITC is “refundable,” meaning that if it exceeds a low-wage worker’s federal income tax liability, the Internal Revenue Service refunds the balance to the taxpayer.
The Child Tax Credit, which provides taxpayers up to $1,000 for each dependent child under age 17, is designed to help families offset the costs of raising children. Like the EITC, the CTC increases with earnings, but unlike the EITC, the first $3,000 in earnings do not count when determining the CTC. Families receive a refund equal to 15 percent of their earnings above $3,000, up to the credit’s full $1,000-per-child value. For example, a mother with two children who works full time at the federal minimum wage — earning $14,500 in 2015 — will receive a refund of $1,725 (15 percent of $11,500).
Both the EITC and CTC are available only to working families and phase in as earnings increase. Research strongly suggests that low-income families do not understand how much of their tax refund comes from the EITC or the CTC, but they do understand that if they work they can qualify for significant tax-based benefits.
The EITC and CTC reduce poverty and inequality in at least two ways: (1) by supplementing the wages of low-paid poor or near-poor workers, and (2) by encouraging work. The EITC’s primary recipients are working parents with children, though a small EITC is available to working adults without dependent children. The credit rises with earned income until reaching a maximum (which varies by the number of qualified children) and then phases out as income rises further. In 2015, the phase-outs begin at about $18,810 for single filers with children and about $23,630 for married filers with children, and the average size of the credit is likely to be $3,074 for a family with children and $281 for a family without children.
The Earned Income Tax Credit is a very effective anti-poverty and pro-work tax credit. However, it provides far less help to low-income workers who are not raising children. This group has an unenviable distinction as the only group of Americans who are taxed into poverty. Expanding the EITC to these workers would benefit up to 659,000 Pennsylvanians. Similarly, families with children earning under $3,000 a year are excluded from claiming the Child Tax Credit (CTC), denying help to children because their parents, despite working, are too poor. Expanding the CTC to these poorest children and families would benefit millions across the U.S. every year.
President Obama and House Speaker Paul Ryan are among the bipartisan supporters of expanding the EITC to workers who are not raising children. Both have put forth nearly identical proposals to make more workers not raising children eligible for the EITC and make the credit more adequate. About 554,000 workers in Pennsylvania would become eligible for an EITC or receive a larger EITC in their 2017 taxes under the Obama and Ryan proposals.
If the Obama and Ryan EITC proposals went into effect, the immediate benefits would include:
- 30,000 Pennsylvania veteran and military members would become eligible for an EITC or receive a larger EITC in their 2017 taxes
- About 166,000 Pennsylvania workers between the ages of 21 and 24 would become eligible for an EITC in their 2017 taxes
- About 61,000 low-wage rural workers (outside of metropolitan areas) in Pennsylvania would become eligible for an EITC or receive a larger EITC in their 2017 taxes
- Top 3 occupations that would benefit from the EITC expansion in 2017 are (1) Cashiers, (2) Cooks, and (3) Laborers and freight, stock, and material movers
Did you know that…
- 970,000 Pennsylvania households received the EITC in 2014
- 601,000 Pennsylvania households received the low-income part of the CTC in 2014
- 223,000 Pennsylvanians were lifted out of poverty by the EITC and CTC, including 116,000 children, each year, on average, during 2011 to 2013
- The federal EITC put about $2.1 billion into the pockets of Pennsylvania families who claimed it in 2014
For these reasons, CAAP supports an expansion of the Earned Income Tax Credit to workers not raising children and an expansion of the Child Tax Credit to families making less than $3,000 a year. President Obama, House Speaker Paul Ryan (R-WI), and Senator Sherrod Brown (D-OH) are among the bipartisan supporters of expanding the EITC, so helping workers without dependent children should be a top priority for Congress.