Earned Income Tax Credit (EITC)

SOC Final Exam

What is the Earned Income Tax Credit (EITC)?

A refundable federal income tax credit for low-income individuals and families who are working, designed to boost income and reduce poverty

When was the EITC enacted and why?

Enacted in 1975 to encourage work and to offset the burden of payroll taxes for low-income workers

Is the EITC means-tested?

Yes, it is a means-tested cash benefit delivered through the tax code

What does “refundable” mean in the context of EITC?

It means that if the credit exceeds a worker’s tax liability, the excess is paid out as a refund, adding to the recipient’s income

What is the general political support for the EITC?

Broad bipartisan support because it encourages work and reduces poverty

Do states have their own EITC programs?

Yes, as of 2016, 26 states and D.C. offer their own EITCs, most of which are a percentage of the federal credit and refundable in most cases

How does the EITC affect poor families?

It adds income and encourages employment, making it the single most effective anti-poverty program for working-age households

Does the EITC reduce the official poverty rate?

No, because the Official Poverty Measure (OPM) excludes tax credits and non-cash transfers

What measure does include the EITC’s impact on poverty

The Supplemental Poverty Measure (SPM) includes tax credits like the EITC and gives a more accurate picture of poverty reduction

What does the phase-out range of the EITC refer to?

Income level where credit decreases

What is the difference between a tax credit and a tax deduction

Tax credit: Reduces tax owed dollar to dollar

Tax deduction: Reducing taxable income only

What are EITC benefits claimed on?

Federal tax returns