Social Work and the Earned Income Tax Credit: Increasing Participation Rates

Background and Purpose: Social work’s lowest earning clients often fail to claim the Earned Income Tax Credit (EITC), a refundable tax credit for American citizens or permanent residents if they have earned any income in a fiscal year, notwithstanding receiving other assistance. The EITC can help working families tremendously. The EITC is not automatic when filing a tax return but must be claimed on form EIC. Although the last study on EITC participation rates by the Internal Revenue Service (IRS) was conducted in 1996 (IRS, 1996), the IRS claims that participation rates are 80% - 85% (Williams, & Kneebone, 2013). This study investigates: 1) What is the EITC non-claim rates among households below $5,000 (expected to be eligible at rates > 100%); and 2) what factors are contributing to EITC non-claim rates?

Methods: To address the first research question, this study utilized 2010 data at incomes below $5,000 from the Brookings Institution and Census to estimate EITC non-claim rates from the number of EITC returns as a percentage of eligible households in the 50 states and the District of Columbia. To address the second research question, correlation and multiple regression analyses were conducted to examine the relationship between EITC non-claim rates and the predictors (in percentages): “population below poverty “population who speak English less than very well,” population who is not a citizen,” “population who did not work in the past 12 months,” and “population over age 25 with less than high school.”

Results: The results of the first research question indicate that although total returns and households are highly correlated (r=0.976, p=.000), EITC claims are much fewer even at very low incomes. EITC non-claim rates range from -2.78% to 60.77%, averaging 32.5%, higher than official figures. To answer the second research question, regression results with all 5 predictors produced R² = .569, F(5, 45) = 11.889, p = .001. A follow-up stepwise regression model (R² = .355, F(1, 49) = 29.970, p < .001) retained only one predictor, “population over age 25 with less than high school ” (β = 2.520, t = 5.193, p < .001).

Conclusions and Implications: The results suggest that the EITC is not claimed by substantially fewer eligible households than IRS estimates. Further, the regression findings indicate that low EITC claim rates among the lowest earners are not predicted by not working, not being a citizen, or being in poverty, but predicted by low educational attainment. EITC claim rates among the poorest people can be improved by targeting people with lower educational levels with financial literacy interventions. Policy implications include the simplification of the claim process, making it automatic rather than requiring an additional form. Social work has a particularly important role in promoting full participation in this program. Social workers can increase participation rates by educating our clients and helping working families access free volunteer tax services. The EITC is a painless way to put some earned cash in the hands of our vulnerable clients and help remediate their poverty.