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What is EITC?
Enacted by Congress in 1975, the Earned Income Tax Credit (EITC) is a tax credit available for working families whose income is less than twice the federal poverty line. EITC represents the largest single source of funding for low-income working families ($38 billion in 2004).
Who is Eligible?
A family can receive up to $4,400 annually through the EITC. Working families earning $35,263 or less may be eligible for the tax credit, even if they didn't earn enough to pay taxes.
Challenges
Larger percentages of eligible families claim EITC than traditional social welfare programs (TANF, Food Stamps, Medicaid). Yet:
- As many as 25% of eligible families fail to claim the EITC they have earned.
- In 1999, 65.7% of families living at 50 to 100% of the federal poverty level knew about EITC.
- Less than 50% of the very poor (those who are less than 50% of the federal poverty level) knew about EITC.
- Low-income Hispanic parents are less likely to know about or receive the EITC than low-income non-Hispanic parents of any ethnic group.
- Because of the technical requirements of filing for EITC credits, EITC recipients often utilize professional tax preparers that charge fees to complete their tax returns.
- Many EITC recipients do not have bank accounts and use high-cost rapid refund loan services, check cashing services and other 'predatory lenders' to receive their tax return payments. This again reduces the amount of money recipients have to build financial sustainability and economic self-sufficiency.
Community Impact
In communities across the country, EITC is:
- Reducing the numbers of families living in poverty. 1 In 2004, over 20 million working families received nearly $38 billion in EITC. EITC lifted 4.7 million people above the poverty line.
- Promoting work. The EITC makes work more attractive than Welfare programs and helps many families make the transition from public assistance into the labor force.
- Reducing inequality in income. Has ability to turn a $7 per hour job into an $9 per hour job
- Helping low-income families build assets. The potential for significant cash payments to be received, provides a strategic link to introduce various asset building opportunities.
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