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, designed to incentivize work and help reduce poverty, particularly for families with children.[1, 2] It is an 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]
How does an EITC help working people?
An EITC can act as an additional source of income when applied as a refundable credit like the federal EITC and many state EITCs. [1, 4] The amount of the credit varies and generally is based upon income, marital status, and number of qualifying children in the family.[2, 4] If eligible participants qualify for a refundable credit larger than the taxes they owe, participants will receive a tax refund check for the difference, getting the entire value of the credit earned through their work.[1, 2]
For example, the federal EITC could give a minimum wage worker with two kids up to 40 percent more income.[5, 6] Federal, state, and local EITCs must be claimed by filing an annual tax return, even if the tax filer’s income is below the respective filing requirement.[1,2]
What states have EITCs?
As of March 2019, 29 states,* the District of Columbia and Puerto Rico have established their own EITCs to supplement the federal tax credit † and offset some or all of a worker’s state income tax liability.[7, 8] Of those with state EITCs in 2019, six states offered it only as a non-refundable credit that reduces state income tax liability. These states (DE, HI, OH, OK, SC, VA) do not provide a refund for the difference when the amount of the credit exceeds the taxes owed.[2, 7, 8]
Some local jurisdictions, such as New York City and Montgomery County, Maryland, also offer local EITCs as an additional level of support.[3, 9] Federal eligibility requirements and credit determinations are the same for all U.S. taxpayers.[2, 4] State and local eligibility requirements and credit determinations vary by jurisdiction.[2, 3, 7, 10] For instance, state EITCs that are calculated as a percentage of the federal credit can range from 3 to 85 percent.
Strategies to help people learn about and use EITCs
The Internal Revenue Service will send a notice to taxpayers who may qualify for the federal EITC but did not claim it. Similarly, states and cities have used a variety of strategies to make more effective use of EITCs:
- Laws requiring states to notify potentially qualified families and individuals of the credit (AL, AZ, IA, ME, VA)[2, 7, 12]
- State funding to support outreach about EITC and tax preparation assistance programs (IA, VA)[2, 7]
- Laws requiring employers to give notice of the federal and any state EITC to potentially qualified employees (TX, NJ, IL, LA)
- Funding the “Working Families Credit” for eligible residents to promote use of the federal EITC (San Francisco).
Also, health systems and public health partners often are involved in outreach to eligible individuals to raise awareness of and accessibility to the EITC:
- Offering free tax assistance to EITC-eligible families in primary care settings to take advantage of clinic wait times
- Providing tax services at no charge to low-income residents, which are funded by non-profit organizations, such as United Way.
What is the public health issue?
The relationship between income and health, and between poverty and poor health in particular, has been well established.[17-19] Income can influence health in a variety of ways, such as access to health insurance and medical services, living in a thriving community, economic stability at home and in the community, and risk for one or more chronic diseases. Not only are low-income families often unable to afford health insurance and healthcare, they frequently do not have sufficient income to live in safe communities with adequate housing and schools. Additionally, in many cases, low-income families do not have access to healthy food, parks or other physical activity facilities, and public transportation—all of which impact health. Moreover, the financial stress and insecurity that often accompany poverty can negatively affect health.[20, 21]
Given U.S. poverty levels, these potential health impacts are a significant public health concern. According to the U.S. Census Bureau, 5.8 percent of workers aged 18 to 64 were in poverty in 2017 and comprised 20.4 percent of the people in poverty. The poverty rate was estimated at 2.2 percent for those who worked full time in 2017 and 13.4 percent among those who worked less than full time.
Poverty has also been linked to adverse health outcomes for infants and children.[23-25] Children comprised 22.7 percent of the total population in 2017, yet represented 32.3 percent of the people in poverty; 17 percent of children lived in poverty in 2017.
EITC can improve public health by helping to lift people out of poverty. Data show the EITC lifted 5.7 million people out of poverty in 2017, including about 3 million—or more than half of them—children.[2, 8] 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.[ 2, 27]
What is the evidence of health impact and cost effectiveness?
Impact on health outcomes for infants and mothers
By reducing poverty and increasing income for working families, EITC has been linked to positive health outcomes, particularly for infants and mothers.[5, 28-30] Additionally, a dose-response pattern has been observed for EITCs, meaning that larger health improvements happen with larger, more generous EITC benefits.[ 21, 28, 31]
Availability and Size of State EITC
States with any level of EITC have shown improvement in important infant health measures. Multiple studies have found the existence of a state EITC is related to a reduction in the low birthweight (weight is less than 2500 grams, or about 5 lbs 8 oz) rate of infants, which puts babies at increased risk for death and poor childhood health:
- An increase of $1,000 in EITC income for single mothers with less than 12 years of education has been linked to a 1.6 to 2.9 percent reduction in the low birthweight rate.
- A 2017 study reviewing 20 years of state EITC changes showed reducing the low birthweight rate by 4 to 11 percent was related to the presence of a state EITC across 23 states.
- Increasing the combined New York City’s and New York state’s EITC rate from 20 to 35 percent was associated with 0.45 percent decrease in the low birthweight rate in low-income New York City neighborhoods. This is a substantial improvement because low birthweight rates had fluctuated only 0.8 percentage points (between 9.0 and 9.8 percent) in those neighborhoods studied during a 14 year time period.
Similarly, the presence of a state EITC has been linked to an increase in average birth weight by 9 to 27 grams (0.3 – 0.8 percent) and increases in average gestation time. In addition to benefits for infants, evidence has shown improved health status among mothers with the EITC.[23, 32]
Increasing the amount of an EITC can be linked to greater health benefits:
- A 2009 study showed that each time the EITC increased by 10 percent, infant mortality dropped by about 23 fewer deaths for every 100,000 births.
- A 2017 multistate study reported that in states with a refundable credit equal to or greater than 10 percent of the federal EITC, birth weights increased by 16-34 grams while birth weights increased by only 3-15 grams in states with a non-refundable credit that was less than 10 percent of the federal EITC.
- Similarly, states offering an EITC equal to or greater than 10 percent of the federal EITC experienced greater increases in average gestation weeks.
- Larger EITCs are also linked to better maternal health outcomes. For example, 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.
Refundable vs. Non-Refundable EITC
A refundable EITC can offer larger, more generous benefits than a nonrefundable credit of the same percentage because it returns the full value of the credit to the worker.[8, 21] In the 2017 multistate study, states with the largest reductions in low birthweight rates and greatest increases in birth weight all had refundable tax credit. However, refundability was not positively related to increased gestation weeks. States with nonrefundable EITCs, regardless of value, experienced greater increases in gestation time.
EITC Impact on Economic Activity
Earned income tax credits have also been linked to generating economic activity at state and local levels.[33,34] 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). 2019. Available from: Earned Income Tax Credit (EITC)external icon. Accessed 2019 March 12.
- National Conference of State Legislatures. Tax credits for working families: Earned Income Tax Credit (EITC). 2018. Available from: Tax Credits for Working Families: Earned Income Tax Credit (EITC)external icon. Accessed 2019 March 12.
- New York State Department of Taxation and Finance. New York City credits. 2019. Available from: New York City creditsexternal icon. Accessed 2019 March 12.
- Internal Review Service. Do I qualify for EITC? 2018. Available from: Do I Qualify for EITC?external icon Accessed 2019 March 12.
- 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.
- Internal Revenue Service. EIC Table, Publication 596 (2018), Earned Income Credit. Washington, DC: IRS; 2017. Available from: EIC Tableexternal icon. Accessed 12 March 2019.
- Sutphen O. The state of the Earned Income Tax Credit. LegisBrief, 2018;26(03). Available from: The State of Earned Income Tax Creditexternal icon. Accessed 2019 March 14.
- Center on Budget and Policy Priorities. How much would a state Earned Income Tax Credit Cost in Fiscal Year 2020? 2019. Available from: How much would a state Earned Income Tax Credit Cost in Fiscal Year 2020?external icon Accessed 2019 March 12.
- Montgomery County Government. Earned income credit EIC refund. Available from: Earned Income Credit EIC Refundexternal icon. Accessed 2019 March 12.
- 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)external icon. Accessed 2015 Nov 25.
- Internal Revenue Service. I received a letter from the IRS about my credit; what should I do? 2018. Available from: I received a Letter from the IRS about My Credit; What Should I Do?external icon Accessed 2019 March 12.
- 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 statesexternal icon. Accessed 2016 June 7.
- Paille J. Earned Income Tax Credits: Employee notification requirements. Thomson Reuters Tax & Accounting. 2015. Available from: Earned Income Tax Credits: Employee Notification Requirementsexternal icon. Accessed 2018 May 14.
- City and County of San Francisco. What is the Working Families Credit (WFC)? 2016. Available from: What is the Working Families Credit (WFC)?external icon Accessed 2016 Jun 6.
- Hole MK, Marcil LE, Vinci RJ. Improving Access to Evidence-Based Antipoverty Government Programs in the United States, A Novel Primary Care Initiative. JAMA Pediatr. 2017;171(3):211-212.
- Minnesota 2-1-1. Tax Help. Greater Twin Cities United Way. Available from: Tax Helpexternal icon. Accessed 2018 June 12.
- 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.
- Woolf S, Aron L, Dubay L, Simon S, Zimmerman E, Luk K. How are income and wealth linked to health and longevity? Urban Institute Center for Health Policy, 2015. Available from: How are income and wealth linked to health and longevity?pdf iconexternal icon Accessed 2019 March 12.
- Markowitz S, Komro K, Livingston M, et al. Effects of state-level Earned Income Tax Credit laws in the U.S. on maternal health behaviors and infant health outcomes. Social Science & Medicine, 2017;197:67-75.
- Fontenot KR, Semega JL, Kollar MA. Income and poverty in the United States: 2017. Current Population Reports, Report Number P60-263. United States Census Bureau. Washington, DC: U.S. Government Printing Office; 2018. Available from: Income and poverty in the United States: 2017pdf iconexternal icon. Accessed 2019 March 12.
- 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.
- 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 Creditpdf iconexternal icon. Accessed 2017 June 18.
- Internal Revenue Service. EITC & other refundable credits. About EITC. 2018. Available from: About EITCexternal icon. Accessed 2019 March 12.
- 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. Accessed 2018 July 5.
- 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 Creditspdf iconexternal icon. Accessed 2017 June 18.
- 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.
- 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.
- 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.external icon 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.