Enhancing and Expanding the EITC for Low-Wage Workers

The Earned Income Tax Credit (EITC) is both a powerful income and wealth-building tool. Last year, 27 million tax filers claimed the EITC, receiving an average benefit of $2,454. A married couple with two children and an income of $40,000 for the year qualified for an EITC of $2,142—meaning their EITC benefit was the equivalent of 5% of their annual income. Although it is structured as a wage subsidy, the EITC actually functions as a lump-sum payment received at tax time. Studies and reports from practitioners that serve EITC filers reveal that the vast majority of EITC recipients prefer the forced savings mechanism of the EITC to an alternative monthly wage boost. EITC claimants interviewed for the book It’s Not Like I’m Poor primarily used their tax refunds to save, pay down debt, and invest in long-term assets. Researchers for the book concluded that these EITC-eligible families used their tax refunds to “build their aspirations for upward mobility."

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