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Federal Earned Income Tax Credit (EITC)


» View national participant and spending data

The federal Earned Income Tax Credit (EITC) is the nation’s largest cash program directed at low-income families. It reduces the amount of income tax low- to moderate-income working families (with annual incomes of up to roughly $35,000) are required to pay, and provides a wage supplement to some families. One of the most important features of the federal EITC is that it is refundable. This means that if the amount of the credit exceeds the amount the family owes in federal income taxes, the family receives the difference as a cash payment. By definition, only families with earnings are eligible for the EITC.

For tax year 2008, families with two or more children and annual income of up to $12,060 receive a 40 cent credit for every dollar they earn, for a maximum benefit of $4,824. After $12,060, additional earnings do not increase the amount of the credit.

The credit begins to phase out at an income level of $15,740 for single-parent families and $18,740 for two-parent families, meaning the credit declines by about 21 cents per additional dollar earned until the benefit reaches $0 at an income level of $38,646 for single-parent families and $41,646 for two-parent families. These figures refer to benefits for families with at least two children. The structure of the credit is similar for families with one child, but the income limits and benefit levels are lower.

The U.S. General Accounting Office estimates that about 86 percent of eligible households with children claim the federal EITC, although research suggests that filing rates may be significantly lower among eligible former welfare recipients.

National Participant & Spending Data

Participants

Number of recipients

Number of recipients (tax filers)122.2 million tax filers (2005)

Spending

Total spending

Total spending (federal)2$41.5 billion (2005)

Data Notes and Sources

Last Updated: November 30, -0001

  1. Figure includes claimants with and without qualifying children (data are preliminary); nationally, about 82% of claimants were tax filers with qualifying children (based on 2001 data).
    Center on Budget and Policy Priorities, The 2007 Earned Income Tax Credit Outreach Kit, http://www.cbpp.org (accessed June 14, 2007).
  2. Figure includes spending on claimants with and without qualifying children (data are preliminary); nationally, about 98% of spending is for tax filers with qualifying children (based on 2001 data).
    Center on Budget and Policy Priorities, The 2007 Earned Income Tax Credit Outreach Kit, http://www.cbpp.org (accessed June 14, 2007).