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A Lile Bit of History
The federal Earned Income Tax Credit1 dates back to 1975 when it was enacted by congress
and signed into law by President Gerald Ford. At that $me, the credit was aimed at helping
the working poor with children o’set the burden of social security and Medicare taxes;
subsequently the credit became permanent in 1978 (Beverly, 2002:260). The credit has been
subject to several amendments and expansions over the years in an e’ort to increase its
benefit and extend them to childless taxpayers and families with more than one child
(Beamer, 2005: 387).
Although the credit was cra8ed as a conserva$ve initiative aimed at making work pay,
liberals have embraced the general principle of associa$ng welfare to employment (Mead,
2014:20). Expansions to the EITC were supported by both parties in 1986 and 1990, and a
major expansion was advocated by President Clinton and enacted by congress in 1993
(Beamer, 2005). More recently, the credit has been temporarily expanded under the
American Recovery and Reinvestment Act of 2009 (Meyer, 2010:155).
How Does it Work?
According to the Center on Budget and Policy priorities (2015:1), more than 27 million
working families and individuals were bene6ted by the EITC in the 2013 tax year. For the
2014 tax year, the credit provides up to $6,143 for families with three children, $5,460 for
families with two children and $3,305 for families with one child three or more children; the
lowest credit bene6t up to $496 goes to childless families (IRS2, 2014:1).
Table 1: 2014 EITC Parameters*
1 The terms “EITC” and “credit” are used interchangeably throughout this paper to refer to the Earned Income
Tax Credit.
2 Internal Revenue Service.
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Single, Head of
Household or
Qualifying Widower
Eligible
earnings
up to
Earnings at
start of
phase-out
Earnings
at end of
phase-out
Maximum
credit
No Child 6,480 8,110 14,590 496
1 Child 9,720 17,830 38,511 3,305
2 Children 13,650 17,830 43,756 5,460
3+ Children 13,650 17,830 46,997 6,143
Married Filing
Jointly
No Child 6,480 13,540 20,020 496
1 Child 9,720 23,260 43,941 3,305
2 Children 13,650 23,260 49,186 5,460
3+ Children 13,650 23,260 52,427 6,143
* Source: Adapted from The Tax Policy Brie6ng Book, “Taxa$on and the
Family: What is the Earned Income Tax Credit?, Maag & Carasso, Feb 2014.
As it can be inferred from the numbers above, the EITC is boEomed on targe$ng families
with children but its maximum benefit are ul$mately determined by the 6ling status of the
taxpayers and by the number of qualifying children, up to three children. The credit
corresponds to a 6xed percentage of earnings from the 6rst dollar until it reaches its
maximum (Maag & Carasso, 2014:1); the credit phases in based on earnings and the number
of children, then plateaus as earnings increase to the maximum limit, and eventually phases
out completely (Meyer, 2010:155).
The IRS has strict eligibility requirements for taxpayers who wish to claim the EITC; these
include among others: having earned income, 6ling a tax return as other than “married 6ling
separately”, having $3,950 or less of investment income, and not being a qualifying child or
dependent of another taxpayer. In addition, qualifying children must pass several tests for
parents to claim the EITC (IRS, 2014:1). Some argue that the EITC is unnecessarily complex,
naming in particular IRS publication 596, which is 68y six pages long (Hamilton Project,
2007:16; Meyer, 2010:170).
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A Tool for the War on Poverty
Both republicans and democrats alike agree that the credit is a simple solution to improve
the economic situa$on of millions of low-income working families in America (Cook, 2014).
The credit has become one of the most e‘ec$ve an$poverty programs in America (De La
Vega, 2013:8); moreover, Meyer argues that no other an$poverty program is as e’ec$ve as
the EITC (Meyer, 2010:159). The Tax Policy Center es$mates that 26 million households will
bene6t from tax refunds and reduc$ons amoun$ng to some $60 billion by means of the EITC
