Earned Income Tax Credit

The Earned Income Tax Credit (EITC) is a refundable credit in the U.S. federal income tax code that reduces the tax liability of low- and moderate-income workers, and pays out the balance as a cash refund when the credit exceeds taxes owed. Enacted in 1975 under the Tax Reduction Act signed by President Gerald Ford, it was originally a temporary measure intended to offset the burden of Social Security payroll taxes on low-wage workers and to strengthen work incentives relative to traditional cash welfare. It was made permanent in 1978 and substantially expanded under the Tax Reform Act of 1986, the Omnibus Budget Reconciliation Acts of 1990 and 1993, and the American Rescue Plan Act of 2021 (which temporarily broadened eligibility for childless workers).

The credit's value depends on earned income, filing status, and number of qualifying children. It has three structural phases: a phase-in range, where the credit rises with each additional dollar earned; a plateau at the maximum credit; and a phase-out range, where the credit gradually falls to zero as income rises. Workers with three or more qualifying children receive the largest maximum credit; childless workers receive a much smaller amount.

The EITC is administered by the Internal Revenue Service and claimed via Schedule EIC on Form 1040. It is one of the largest federal anti-poverty programs in the United States: the Census Bureau's Supplemental Poverty Measure regularly identifies the EITC, together with the Child Tax Credit, as lifting several million people out of poverty each year.

Economists across the political spectrum have generally viewed the EITC favorably because it conditions assistance on work. Empirical research, notably by Nada Eissa and Jeffrey Liebman, has linked EITC expansions to higher labor force participation among single mothers. Persistent concerns include high improper-payment rates, complexity that depresses take-up, and the "marriage penalty" produced by joint-filer phase-outs. Several U.S. states and the District of Columbia operate their own EITCs that piggyback on the federal credit.