EIC Eases Tax Time Pressures for Working Parents

Caitlin Johnson
April 9, 2000

It's a Thursday night the week before taxes are due and eight people are waiting in a basement room in the Martin Luther King, Jr. Public Library in Washington, DC. Most are carrying small stacks of papers, pay stubs and tax booklets. One woman rocks a small child in her arms. It's 8:00, past the young boy's bedtime but his mother kept him up late so she could get free help filing her taxes, which can get complicated because she—like most of the people in the room—claims an Earned Income Credit, or EIC. And she can't afford to pay a tax agency to help her.

In libraries, shopping malls, community centers and other public places across the country, Volunteer Income Tax Assistance (VITA) and similar programs offer free tax preparation to low- and moderate-income families. VITA volunteers are trained by the IRS, and can help families who are eligible for the EIC.

The EIC—sometimes called the earned income tax credit, or EITC—was created by Republican President Gerald Ford in the 1970s and expanded in the early 1990s. It helps more than 20 million families annually, using the tax system to help workers get back some or all of the income tax withheld during the year. Some families are even eligible to receive more money from the IRS than they owe in taxes.

And it really works. The EIC is most powerful anti-poverty program for families with children, according to Census data: in 1998 the EIC lifted 4.8 million people—including 2.6 million children of low-income workers—above the poverty line. It's a plan with wide-ranging popularity, one of the few poverty supports with bipartisan backing.

Since welfare reform shifted the emphasis from welfare to work—and in many cases very low-wage jobs—families' reliance on the EIC has grown.

Who's Eligible?
Aimed at making work more attractive than welfare, the EIC targets low-income families raising children. Families with one child and incomes less than $26,928 can get more than $2,300 back. For families with two or more children, the maximum income level is $30,500.

"But it's not just for your own children," says John Wancheck, EIC Campaign Coordinator at the Center for Budget Policy and Priorities (CBPP). "A grandparent who's raising a grandchild can get it, foster parents can claim it. And so can people caring for a dependent child or adult who's disabled."

Wendy, a single mother living in suburban Virginia who asked that her last name be withheld, learned about the EIC from a colleague who had gone to a VITA volunteer for help preparing taxes. She and her 5-year-old daughter are eligible to get back more than $500 this year—money she needs to offset the costs of child care, rent and groceries. "It really makes a big difference," she says. "Any little bit helps because raising a child is not easy, no matter what you make."

Research shows that most people who are eligible for EIC do take advantage of it, nearly 80 percent, according to a 1994 study. But a significant number don't—for all the reasons you might expect.

"Some of the problem may simply be that people are not aware that they're eligible," says CBPP's Wancheck. "Some may be new to employment or new parents and not familiar with doing tax returns. Tax instructions and forms are available only in English, so there may also be language barriers. Some communities have high populations of homeless working families, and they may be suspicious of doing tax returns or have trouble getting documentation from employers."

Programs like VITA are working to spread the word about the EIC, and help people fill out the forms it takes to claim it—all for free.

Eleven states also offer a state Earned Income Credit, in addition to the federal EIC. Several other states are considering EIC programs. On October 19, 1999, Montgomery County, Maryland approved the nation's first local income tax credit for low-income working families.

For More Information
Think you might be eligible for the EIC? You can call the IRS hotline at 1-800-TAX-1040 to find the closest VITA site, and get more information about the credit for this tax season or the next. Be patient, the line is often busy.

To learn more about the EIC and other programs helping low-income families and children rise out of poverty, visit the Center on Budget Policy and Priorities. Be sure to check out the Earned Income Tax Credit Outreach Kit.

Visit the Connect for Kids Welfare topic pages.

The EIC in Action  

 

Consider these examples, from the Center on Budget Policy and Priorities:

  • "Mr. and Mrs. Johnson have two children. They earned $26,000 in 1999 and owe the IRS $1,000 more than what was withheld from their pay during the year. But their income also makes them eligible for an EIC of $964. The EIC reduces the additional taxes they owe from $1,000 to $34."

     

  • Ms. Berger has two children in college and earned $19,000 in 1999. Her federal income tax for the year was $660, all of which was withheld from her pay. She is eligible for an EIC of $2,439. The EIC pays her back the $660 she paid in income tax and gives her an additional cash refund of $1,779.

 


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