Who Fills out a Tax Return and a Special Form for the EITC?

Background and Purpose: Tax filing is burdensome in the United States. Considering that tax filing costs are regressive, it is much more burdensome to low-income families. However, major safety net programs for low-income families with children are operated within a tax system in the U.S. For example, the Earned Income Tax Credit (EITC), a cash transfer program for low-income working families operated within a tax system, is one of the biggest anti-poverty programs in the U.S. If lower-income families or other marginalized groups are less likely to file taxes because of the tax filing costs, it might mean that some eligible families are not claiming the welfare benefits that might significantly alleviate their economic burdens if received. To investigate whether that is happening, this paper asks: Who files a tax return and a special form for the EITC?

Methods: Using longitudinal data from the Future of Families and Child Wellbeing Study (FFCWS), this study conducts linear probability models. Focusing on mothers with a 5-year-old child, I examine the likelihood of filing taxes and filling out a special form for the EITC based on sociodemographic factors, including income, race, level of education, marital status, and family structure. To measure mothers’ tax filing and EITC application status, I use the FFCWS’s mothers’ core survey for Year 5 that asks mothers whether they filled out a federal tax return for 2002 or 2003. Since tax filing behavior and EITC eligibility are closely related to employment status, I restrict the analysis to mothers who were likely to be working when they had to fill out a federal tax return for 2002 or 2003. For robustness checks, I run logistic regressions to check whether my results hold.

Results: Preliminary results suggest that some marginalized mothers may not be receiving or claiming the EITC benefits because they do not file taxes, not because they do not fill out the EITC special form. Low-income mothers (versus higher-income mothers), mothers without a high school degree (versus mothers with a college degree), mothers cohabiting with the child’s father, and those married to a partner other than the child’s father (versus mothers married with the child’s father) are less likely to file taxes, but once they filed taxes, they are more likely to apply for the EITC, compared to their counterparts. Moreover, Black mothers are more likely to apply for the EITC than White mothers.

Conclusions and Implications: Preliminary results suggest that marginalized groups are more likely to apply for the EITC once tax is filed. Therefore, implementing policies to facilitate tax filing (e.g., providing financial and advisory support, especially for marginalized populations) would be essential in allowing marginalized groups to access social benefits provided within the tax system. As we have seen experimental evidence that free tax preparation increased filing and new filers’ EITC claiming (Goldin et al., 2022), lowering the barrier in tax filing would be essential in increasing the take-up for social safety net programs operated within a tax system like the EITC.