Earned Income Tax Credits
What is an Earned Income Tax Credit (EITC)?
An earned income tax credit (EITC) is a benefit for working people with low- to moderate-income. It is a refundable income tax credit that can be levied at the federal, state, and local levels in order to reduce the tax burden for low- to moderate-income working people.[2, 3] As a refundable credit, EITC also can act as an additional source of income; if eligible participants qualify for an EITC benefit larger than the taxes they owe, they will receive a tax refund check for the difference. For example, the EITC could give a minimum wage worker with two kids up to 40 percent more income. Federal, state, and local EITCs may be claimed by tax filers when filing an annual tax return.[1, 5]
Twenty-six states currently offer EITCs to supplement the federal tax credit.[2, 6] States such as Alabama, Iowa, Michigan, and Virginia also have laws that require the state to notify qualified families and individuals about this credit. Some cities, such as New York City and San Francisco, also offer local EITCs as an additional level of support.[3, 8] Federal eligibility requirements and credit determinations are the same for all U.S. taxpayers. State and local eligibility requirements and credit determinations vary by jurisdiction.[2, 3, 10] For instance, state EITCs that are calculated as a percentage of the federal credit can range from 3.5 percent to 85 percent. Four states offer EITCs only as non-refundable credits that reduce tax liability, but do not provide refunds when the eligible credits are larger than the taxes owed. The main purpose of the EITC is to incentivize people to work while also helping to reduce poverty.
What is the public health issue?
The relationship between income and health, and between poverty and poor health in particular, has been well established.[11-13] Poverty has also been associated with adverse health outcomes for infants and children.[14-16] According to the U.S. Census Bureau, 6.9 percent of workers aged 18 to 64 were in poverty in 2014. The poverty rate was estimated at 3 percent for those who worked full time in 2014 and 15.9 percent among those who worked less than full time. Children comprised 23 percent of the total population in 2014, with 33 percent living in poverty.[14-17] During that same year, data show that the EITC lifted 9.4 million people, including 5 million children, out of poverty. EITC has kept more children living above the poverty line than any other tax credit program. Unfortunately, an estimated 20 percent of eligible people do not claim this benefit.[5, 18]
What is the evidence of health impact and cost effectiveness?
By reducing poverty and increasing income for working families, EITC has been associated with positive health outcomes, particularly for infants and mothers.[4, 20-22] A 2009 study showed that each time the EITC increased by 10 percent, infant mortality dropped by 23.2 per 100,000. For single mothers with less than 12 years of education, an increase of $1,000 in EITC income has been associated with a 6.7 to 10.8 percent reduction in the low-birth-weight rate. A 2015 study of New York City’s and New York State’s EITC benefits during 1997–2010 showed that an increase in the EITC credit was associated with health improvements among low-income families with infants. Increasing the combined EITC rate from 20 to 35 percent was associated with a decrease of 0.45 percent in the low-birth-weight rate in low-income New York City neighborhoods. This was a substantial improvement because low-birth-weight rates had fluctuated only between 9.0 and 9.8 percent in the neighborhoods studied during that time period. In addition to benefits for infants, evidence has shown improved health status among mothers with the EITC.  Working moms with two or more children whose incomes increase under EITC report better overall physical and mental health compared with similar mothers with only one child, who receive lower EITC payments.
Earned income tax credits have also been associated with generating economic activity on the state and local levels.[25, 26] A 2007 analysis of the economic impact of the federal EITC in California found that EITC payments to state residents contributed more than $5 billion in business sales in the state (output) and helped add nearly 30,000 jobs. The study also found that if all eligible residents had claimed their EITCs, those payments would have contributed $1.2 billion more in output and 7,500 more jobs to the state economy.
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- Internal Revenue Service. Earned Income Tax Credit (EITC). 2016. Available from: Earned Income Tax Credit (EITC). Accessed 2016 Jun 6.
- Hathaway J. Tax credits for working families: Earned Income Tax Credit (EITC). 2016. Available from: Tax Credits for Working Families: Earned Income Tax Credit (EITC). Accessed 2016 Jun 6.
- New York State Department of Taxation and Finance. New York City credits. 2014. Available from: New York City credits. Accessed 2016 Jun 6.
- 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.
- Center on Budget and Policy Priorities. Policy basics: state earned income tax credits. 2015. Available from: Policy Basics: State Earned Income Tax Credits. Accessed 2016 Jun 6.
- Internal Revenue Service. States and local governments with earned income tax credit. 2016. Available from: States and Local Governments with Earned Income Tax Credit. Accessed 2016 Jun 7.
- Grovum J. Renewed push for earned income tax credit in states. USA TODAY 2014 Feb 11. Available from: Renewed push for earned income tax credit in states. Accessed 2016 June 7.
- City and County of San Francisco. What is the Working Families Credit (WFC)? 2016. Available from: What is the Working Families Credit (WFC)? Accessed 2016 Jun 6.
- Internal Revenue Service. Do I qualify for EITC? EITC & other refundable credits. 2016. Available from: Do I Qualify for EITC? Accessed 2016 Jun 6.
- Robert Wood Johnson Foundation, University of Wisconsin Population Health Institute. County health rankings & roadmaps: Earned Income Tax Credit (EITC). 2015. Available from: Earned Income Tax Credit (EITC). Accessed 2015 Nov 25.
- Marmot M, Wilkinson R. Social determinants of health. Oxford (UK): Oxford University Press; 2005.
- Bosworth B, Burtless G, Zhang K. Later retirement, inequality in old age, and the growing gap in longevity between rich and poor. Washington, DC: The Brookings Institution; 2016.
- Blackburn C. Poverty and health: working with families. Maidenhead (UK): Open University Press; 1991.
- 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.
- Brooks-Gunn J, Duncan GJ, Leventhal T, Aber JL. Lessons learned and future directions for research on the neighborhoods in which children live. In: Brooks-Gunn J, Duncan GJ, Aber JL, eds. Neighborhood Poverty, Vol. 1: Context and Consequences for Children. New York (NY): Russell Sage Foundation; 1997. p. 279–97.
- Hair NL, Hanson JL, Wolfe BL. Association of child poverty, brain development, and academic achievement. JAMA Pediatrics 2015;169(9):822–29.
- DeNavas-Walt C, Proctor BD. Income and poverty in the United States: 2014. In: Current population reports. United States Census Bureau, Economics and Statistics Administration, ed. Washington, DC: U.S. Government Printing Office; 2015. p. 60–252.
- Internal Revenue Service. About EITC. EITC & other refundable credits. 2016. Available from: About EITC. Accessed 2016 Jun 6.
- Hoynes H. Proposal 11: building on the success of the earned income tax credit. In: Improving safety net and work support. Washington, DC: The Hamilton Project; 2014. Available from: Building on the Success of the Earned Income Tax Credit. Accessed 2017 June 18.
- Hoynes HW, Miller DL, Simon D. Income, the earned income tax credit, and infant health. Cambridge (MA): National Bureau of Economic Research; 2012.
- Hamad R, Rehkopf DH. Poverty, pregnancy, and birth outcomes: a study of the earned income tax credit. Paediatr Perinat Epidemiol 2015;29(5):444–52.
- Chetty R, Friedman JN, Rockoff JE. New evidence on the long-term impacts of tax credits. Washington, DC: Internal Revenue Service; 2011. Available from: New Evidence on the Long-Term Impacts of Tax Credits. Accessed 2017 June 18.
- Wicks-Lim J, Arno PS. Improving population health by reducing poverty: New York’s earned income tax credit. Amherst (MA): Political Economy Research Institute, University of Massachusetts–Amherst; 2015.
- Evans WN, Garthwaite CL. Giving mom a break: the impact of higher EITC payments on maternal health. Cambridge (MA): National Bureau of Economic Research; 2010.
- Avalos A, Alley S. The economic impact of the Earned Income Tax Credit (EITC) in California. California Journal of Politics and Policy 2010;2(1):Art. 17 [25 screens]. Available from: The Economic Impact of the Earned Income Tax Credit (EITC) in California. Accessed 2017 June 18.
- Haskell J. The state of the earned income tax credit in Nashville: an analysis of economic impacts and geographic distribution of the ‘working poor’ tax credit, TY 1997–2004. Nashville (TN): Vanderbilt University; 2006.