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June 2016
Policy&Practice
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child care. A chart showing the wage
supplemental impact of the EITC, other
tax credits, and SNAP benefits that
can be replicated in all other states is
included here using New York State as
the example. The New York chart dem-
onstrates that, when combined with
other cash-like tax credits and benefits,
the EITC can boost the annual income
of a single parent working full time in
a $9-an-hour job to the equivalent of
$16.81 an hour.
The EITC is designed to ensure that
full-time workers do not have to live
in poverty—particularly workers who
are supporting families. This article
explores the history and impact of the
EITC, shows how it can work in concert
with minimum wage laws as a poverty-
fighting measure, and identifies ways
of improving the credit.
History and Background
The federal EITC was enacted in
1975 to offset the burden of payroll
taxes and provide a work incentive for
low- and moderate-income families.
The EITC is refundable—meaning
that when the tax credit exceeds the
amount of taxes owed, the difference
becomes a tax refund. As a result, it
effectively creates a form of negative
income tax.
For tax year 2014, the federal EITC
provided about 28 million households
with $65 billion in tax credits.
1
As most
or working-age individuals
and their families, having a
job and staying in the work-
force are critical to achieving
self-sufficiency and
economic well-being. Transitioning
from federal or state cash assistance
to gainful employment and indepen-
dence is no easy task. Many recipients
of public assistance, when they move
into the workforce, have low-wage
employment and, therefore, rely on
transitional work supports as they
climb the economic ladder and estab-
lish a career pathway.
Low-income working families can
receive a significant annual wage
supplement through the Earned
Income Tax Credit (EITC), which is
available to eligible filers of federal
tax returns and state tax returns in the
26 states and the District of Columbia
that have their own EITC program.
The EITC is the most important of such
wage supplements, followed closely
by the cash transfer benefits from the
Supplemental Nutrition Assistance
Program (SNAP). Both programs
phase benefits down very slowly as
income from employment increases,
thus avoiding the cliff effect inherent
in other benefit programs, such as
F