Expanding Eligibility Criteria for the Earned Income Tax Credit: Potential Impact on Low- and Moderate-Income Tax Filers with No Dependents

Background/Purpose: Despite being the largest anti-poverty program in the U.S., the Earned Income Tax Credit (EITC) offers little support for childless households.  In 2014, President Obama proposed expanding the EITC by revising income and age criteria for workers without dependents. The expansion for childless workers has bipartisan support, marking a shift in the political discussions surrounding poverty in the U.S. Under the proposed eligibility changes, income limits for those without dependents would increase from $13,980 to $17,080 (from $19,190 to $22,293 for married couples filing jointly), and the maximum credit would double from $475 to $950. People at lower incomes could claim larger credits, and more people would receive the maximum credit. The proposed changes would also extend the credit to workers as young as 21 and up to 66 years (currently, only 25 to 64-year-olds qualify). We explore the potential impact of the proposed policy on a sample of low- to moderate-income online tax filers and relate these changes to federal poverty thresholds and hardships.

Methods: We analyze administrative data from TurboTax Freedom Edition tax filers who received refunds and did not claim dependents (n=588,637). EITC qualification and amount were determined using W2 wages, age, and filing status. A subsample of these households (n=2,422) completed surveys that assessed material hardships and financial shocks during the 6 months after filing taxes.

Results: Under current policy, about 19% of childless households in this sample qualified for EITC, averaging $274. Revised income criteria would increase the number of childless households receiving EITC by 22%, and revised age criteria would approximately double the number of EITC recipients in this cohort. The revised EITC averages $638, representing more than a month’s income in this sample.

About half of households without dependents in this sample have gross incomes below the federal poverty level. Among childless households below federal poverty level, current EITC policy brings less than 1% above the poverty line. The proposed EITC policy changes would bring an additional 4% above the poverty line.

Half of childless households who would receive EITC under the revised criteria experienced a financial shock during the 6 months after filing taxes, including major vehicle repair, hospitalization, or legal expense. Similarly, 72% of childless households who would receive the EITC under this expansion reported material hardships such as skipping rent, bills, or necessary medical care.

Conclusions/Implications: Proposed eligibility changes would more than double the number of childless workers receiving EITC in this cohort. The increased credit amount is substantial in context of low and moderate incomes. A small proportion of childless households would be brought above the poverty line by the revised policy. Social workers should support the expansion since it has potential to improve the well-being of millions of childless workers by helping them cope with financial shocks and reducing material hardship. Social workers can also prepare for the implementation of such policies (e.g., tax refunds are primarily received in February), inform clients about upcoming changes, and encourage clients to save tax refunds to help manage unforeseen expenses.