Podcast: The Earned Income Tax Credit
January 29, 2010
In this podcast we'll discuss the Earned Income Tax Credit and how it helps low-wage workers and their families. I'm Michelle Bazie and I'm joined by John Wancheck, Coordinator of the Center's Earned Income Tax Credit Outreach campaign.
1. John, what is the Earned Income Tax Credit?
The Earned Income Tax Credit, or EITC, is a federal tax credit for low- and moderate-income working people. It's designed to reduce poverty, encourage and reward work, as well as offset payroll and income taxes. It's also "refundable," which means that if the credit exceeds the amount of federal taxes owed by a low-wage worker, the IRS will send that extra amount as a refund check.
2. Who is eligible for the federal EITC?
Working families with children that have annual salaries below about $35,000 to $48,000 are generally eligible. Also, lower-income working people without children that have incomes below about $13,000 ($18,000 for a married couple) can receive a smaller EITC.
3. What is the amount of money that people receive in their EITC?
The amount depends on a recipient's income, marital status, and number of children. In 2008, the average EITC was $2,659 for a family with children and $261 for a family without children.
4. How many people receive the EITC and how does it benefit those families?
For the 2007 tax year alone, some 25 million working families and individuals received the EITC. Research indicates that families use the EITC to pay for necessities like their rent, their bills, repair homes, and maintain vehicles that are needed to drive to work. In some cases, the tax credit is used to obtain additional education or training in order to improve chances of getting a job and boost the earning power of the worker.
5. Does that number represent everyone who is eligible to receive the tax credit?
IRS studies show that 25% of eligible workers fail to claim the EITC each year. This is why the Center conducts a national outreach campaign and distributes a community outreach kit to thousands of organizations nationwide.
6. What are the main purposes of the outreach kit?
Basically the kit is designed to assist community groups and public agencies that reach out to low-income workers to help them understand how workers can benefit from the tax credit. Many low-wage workers don't earn enough to owe income tax, so often they don't file taxes. The problem in these cases is that in order for those struggling families to benefit from the EITC, they need to file taxes - and families with children need to fill out a special tax form. The outreach kit outlines how easy it is to file and points toward resources that can help workers get free help in filling out their tax forms.
7. John, do states offer their own tax credit?
Yes, twenty-three states (counting the District of Columbia) have created EITCs to reduce the burden that state taxes can place on low- and moderate-income working families. These credits complement the federal EITC, which helps offset these families' federal taxes.
8. Do you have anything else to add? What's the bottom line?
The bottom line is that the EITC lifts more children in working families out of poverty than any other single program or category of programs. In fact, the poverty rate among children would have been nearly one-third higher without the EITC.
Thank you for joining us, John.
For more information about the Earned Income Tax Credit go to www.eitcoutreach.org.