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Taxation and the Family: What is the Earned Income Tax Credit?


The earned income tax credit (EITC) subsidizes low-income working families. The credit equals a fixed percentage of earnings from the first dollar of earnings until the credit reaches its maximum; both the percentage and the maximum credit depend on the number of children in the family. The credit then stays flat at that maximum as earnings continue to rise, but eventually earnings reach a phase-out range. From that point the credit falls with each additional dollar of income until it disappears entirely (figures 1 and 2). The phaseout begins at a higher income for married couples than for single parents. The credit is fully refundable: any excess beyond a family’s income tax liability is paid as a tax refund.

See Also

Data Sources

Tables T13-0263. Distribution of the Tax Benefits of the Earned Income Tax Credit by Cash Income Class and Percentile

Table T07-0093. Options to Expand the Earned Income Tax Credit for Families with Three or More Children

Further Reading

Carasso, Adam, and C. Eugene Steuerle, “How Marriage Penalties Change under the 2001 Tax Bill ,” TPC Discussion Paper (Washington: Urban-Brookings Tax Policy Center, May 2002).

Carasso, Adam, and C. Eugene Steuerle, “The Hefty Penalty on Marriage Facing Many Households with Children ,” The Future of Children, vol. 15, no. 2, pp. 157-75, Fall 2005.

Carasso, Adam, Jeffrey Rohaly, and C. Eugene Steuerle, “Tax Reform for Families: An Earned Income Tax Credit .” Welfare Reform and Beyond

Policy Brief 26 (Washington: Brookings Institution, July 2003).

Carasso, Adam, C. Eugene Steuerle, and Gillian Reynolds, “Kids’ Share 2007: How Children Fare in the Federal Budget ” (Washington: Urban Institute, March 2007).

Daly, Kay, “Improper Payments: Recent Efforts to Address Improper Payments and Remaining Challenges” (Washington: Government Account-ability Office, April 2011).

Eissa, Nada, and Austin Nichols, “Tax-Transfer Policy and Labor Market Outcomes ” (Washington: Urban Institute, October 2005).

Forman, Jon Barry, Adam Carasso, and Mohammed Adeel Saleem, “Designing a Work-Friendly Tax System: Options and Trade-offs .” Discussion Paper 20 (Washington: Urban-Brookings Tax Policy Center, June 2005).

Maag, Elaine, “Tax Credits, the Minimum Wage, and Inflation ,” Tax Policy Issues and Options Brief 17 (Washington: Urban-Brookings Tax Policy Center, January 2007).

Maag, Elaine, Stephanie Rennane and C. Eugene Steuerle, “A Reference Manual for Child Tax Benefits ,” (Washington: Urban-Brookings Tax Policy Center, April 2011).

Steuerle, C. Eugene, Contemporary U.S. Tax Policy (Washington: Urban Institute).

Treasury Inspector General for Tax Administration, "The Internal Revenue Service is Not in Compliance With Executive Order 13520 to Reduce Improper Payments ," (Washington: Department of the Treasury, August 28, 2013).

Ventry, Dennis J. “The Collision of Tax and Welfare Politics: The Political History of the Earned Income Tax Credit, 1969-99,” National Tax Journal (Special Issue on the Earned Income Tax Credit) vol. 53, no. 2, pp. 983-1026, December 2000.

Authors: Elaine Maag and Adam Carasso

Last updated: February 12, 2014

Category: Bank

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