Keller Anne Ruble, Associate for Policy Research
What would you do with an extra $1,000 at tax time? Buy that new 4K TV you’ve been eyeing? Take an awesome vacation and relax?
For many working families, tax time doesn’t afford such luxuries. Car repairs to get to work, catching up on bills, or doing a much-needed grocery run takes precedence.
Today marks EITC awareness day, raising awareness of the Earned Income Tax Credit, available to working families since the 1970s. The total credit amount is based on income earned throughout the year, family structure (married or single), and number of children, with a maximum amount of $3,373 for one child up to $6,269 for three or more kids.
This credit deserves a day of awareness, as it packs a huge punch. ICS research have shown that for working families and families in poverty, an extra $1,000 a year can do incredible things— kids’ reading and math scores are higher, along with their likelihood of graduating from high school and going to college. Moms get more regular prenatal care and have lower rates of maternal depression and smoking. Parents work more, and increase the future earnings potential of their children. Better yet, the EITC’s impact is stronger the younger a child is when their parent received the EITC.
For years, the EITC has been the most powerful anti-poverty tool in our economic toolkit. But it does so much more than just lift families above the poverty line. Improved health, economic, education outcomes, now and in the long term. For both kids and their parents.
Why? The short answer is: even with both parents working full time, many families are still struggling to meet their basic needs. When you’re working at a minimum wage or even a salaried job, finding a safe and affordable place to live, keeping the lights and water on, and purchasing food and all those pesky items that you just need, like deodorant, paper towels, and Lysol, can be difficult. Couple that on top of finding safe and reliable childcare and gas to get to work and you’re out of money for the month. (Still can’t imagine the challenge? Check out the interactive Spent experience from Urban Ministries of Durham).
The Federal Poverty Line is $24,300 for a family of four. To be self-sufficient and meet just the basic needs, families must earn roughly double the FPL. For some perspective, a mom or dad working full time at the minimum wage earns $15,080. Before taxes.
With the EITC, parents have a little less stress. Families use the credit to catch up on bills, pay for things that help them continue to work or work more- like educational experiences, or better childcare. Since it comes around college decision making time, the credit allows families the freedom to enroll their children in higher education institutions.
The federal EITC plays an important role for families, and states can build on this foundation. Both Democrats and Republicans have long supported the Earned Income Tax Credit, with prominent conservative champions including U.S. Speaker of the House Paul Ryan and Arthur Brooks, President of the American Enterprise Institute. 26 states and the District of Columbia offer their own EITC at this time, with more considering it this legislative session. As was discussed by the panel of tax policy experts we convened last year, the EITC is a lifeline for many families but we can continue to explore how to maximize its benefits.