Today is Earned Income Tax Credit (EITC) Awareness Day, named for the refundable federal tax credit that boosts the incomes of low- and moderate-income working people and their families. The size of a person’s EITC credit depends on income level and how many eligible children they claim, with a maximum value of $6,660 for tax year 2020. The credit lifts millions of families out of poverty every year and improves health, education, and future employment outcomes for children. In 2018, 21% of Black women and Latinas received and benefitted from the EITC, compared to 9% of white women.
Who Benefits from the EITC:
Mary is a single mother with two kids who works as cashier and makes roughly $25,000 a year. Under current law, she could receive a $5,461 credit.1
Low-wage workers— disproportionately women of color—often live paycheck-to-paycheck. They may struggle when faced with large or unexpected expenses, especially during the current crisis. The EITC provides a lump sum for workers like Mary to cover medical or credit card debt, car repairs, a deposit for an apartment, or put aside for an emergency.
Gina is a married woman with three kids. She and her husband make a combined income of $30,000,2 which is below the 2020 federal income poverty threshold. Under current law, her family could receive a $5,648 credit – enough to lift them out of poverty.
The EITC lifts millions of women like Gina out of poverty every year. In 2017, the EITC lifted the incomes of more than 4.5 million people above the federal poverty level—including more than 1.2 million women 18 and older, more than two-thirds of whom were women of color, and nearly 2.5 million children, nearly 75% of whom were children of color.
This year—during a recession—the EITC will be even more important to women whose hours have been cut, were laid off, or had to leave the workforce for caregiving or health reasons. While many women and families devastated by the pandemic will benefit from the EITC, many others will either receive small amounts or no credit.
Who is Left Out of the EITC:
Claire is a single woman without kids who works in retail, making roughly $18,000 a year. She is not eligible for the credit.
Currently, few childless workers receive the EITC, and those who do receive little—maximum $543. For tax year 2020, childless workers paid more than $15,820 annually are not eligible for the credit, leaving many individuals, like Claire, in need of additional income support.
Jesse is a 22-year-old woman who works as a hostess and makes around $13,000 a year. She has been working on her own since she was 18 and does not receive any support from her parents. She is not eligible for the credit.
Under current law, the EITC does not cover childless workers under the age of 25. But young, childless workers are in dire need of help: 31% of women in the low-paid workforce are under 25, and young workers have experienced much higher unemployment rates during the pandemic.
Peggy is a 67-year-old child care worker who makes roughly $10,000 a year and plans to keep working for the foreseeable future. She is not eligible for the credit.
The EITC does not cover childless workers over the age of 64. Many older workers like Peggy cannot afford to retire. Almost one-third of workers age 55 and older do not have either retirement savings or pension. They have also suffered disproportionate health and economic impact from the pandemic. About 13% people age 65 and older have lost their jobs during the pandemic.
How the EITC Can Be Improved:
The Biden-Harris administration’s plan for a new COVID relief package includes temporary expansions of the EITC, the Child Tax Credit, and the Child and Dependent Care Tax Credit. The proposed EITC improvements would support workers like Claire, Jesse, and Peggy. As the package is debated in the coming weeks, it is vital any COVID relief package:
- Increases the amount of the EITC for childless workers;
- Increases income limits for eligibility to claim the credit;
- Expands the age range for eligible workers, so that it covers more young workers and older workers; and
- Allows workers to use tax returns from prior years for the 2022 tax filing season.
These improvements have been needed for years, but are especially critical during this current health and economic crisis. Congress must pass improvements to the EITC and other tax credits, included in the HEROES Act and proposed by the Biden-Harris administration, to ensure working women and families receive the support they need.