The Earned Income Tax Credit (EITC) is one of the most cost-effective and impactful anti-poverty programs implemented over the past few decades. Each year it lifts approximately 6 million people – including 3 million children – over the income-based poverty. The EITC is accessed each year when households file their taxes.
The EITC and other refundable credits create a key moment for families to be able to decide what they need to advance their financial wellness, whether it be buying a car or washing machine, paying off debt, or building an emergency savings fund.
However, the EITC has historically fallen short with certain demographics – most starkly, childless workers. Compared with $3,526 for a tax filer with one child, and $6,557 for a tax filer with three or more children, childless workers have historically only qualified for a maximum EITC of $529.
During my first year volunteering as a tax preparation specialist, I helped a man, let’s call him David, who was experiencing homelessness in the greater Seattle area. David worked and had only earned approximately $11K that year but, because of the inequities with the EITC and our tax code, he OWED money. I remember going through David’s return several times, then double-checking with my site supervisor to make sure I hadn’t missed something. I eventually had to tell him that, even though he only earned $11K that year, he had made too much money to receive a refund, including the ETIC.
David’s story is not unique. Each year, 5.8 million childless, low-wage workers aged 19-65 file their taxes only to find that the money they owe exceeds any EITC they receive.
Progress is Being Made
The American Rescue Plan Act raised the EITC for low-paid working adults who are not raising children at home from about $540 to about $1,500, raised the income cap for them to qualify from about $16,000 to at least $21,000, and expanded the age range of those eligible to include younger adults aged 19-24 who aren’t full-time students and adults over the age of 65. This will only be for this current tax season if there are not further actions from the federal government.
On the State Level, Representative Martina White (Republican, Serving District 170) and Senator Mario Scavello (Republican, Serving District 40) recently introduced co-sponsorship memos in the House and Senate to provide additional support to working families in PA through a State EITC. Twenty-Five different states have already implemented state EITCs. They have been proven to support economic growth and the financial well-being of families. Data from other states estimate that for every $1 given, $1.24 is returned to the economy, and indicate that state EITCs support a greater percentage of households of color than white households.
You can read more about supporting this effort, with our partners at United Way of Pennsylvania, and take action on this timely opportunity here.
What’s next?
Last year 44,000 of the 182,500 Philadelphians who could receive a refund did not apply for EITC, leaving $111 million of credits on the table. Through our VITA (Volunteer Income Tax Assistance) program, United Way is working to ensure everyone in our community has access to the EITC benefit. Our goal, and hope, is that no dollar gets left behind.
When people and families access the tax benefits they are entitled to, they have more opportunities to build financial wellness. You can help by spreading the word and telling your colleagues, friends, family members, and neighbors to get connected to a FREE VITA program today.
This is the third of a five-part series running December 2021– April 2022 highlighting VITA and accessing tax credits as a key strategy under United Way’s Financial Empowerment Pillar. If you missed our first installment about high-impact volunteering with VITA, which provides free tax prep services in our region, click here.