Tax Credits Earned Income Tax Credit (EITC)

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					Tax Credits: Earned Income Tax Credit (EITC)
Definition
The Earned Income Tax Credit is the number and percent of all federal tax filers who filed for the credit.
EITC Filers as a Percentage of All Filers by County, 2005
■ ■ ■ ■ ■ 9 – 14% 15 – 19% 20 – 24% 25 – 29% 30 – 39%

Data in context
The federal Earned Income Tax Credit (EITC), instituted in 1975, has a 30-year track record of supplementing the earnings of low-income working families. Experts credit it as the federal program that has been most responsible for lifting children out of poverty in the United States. The EITC also increases employment among single parents, reduces welfare dependency, and reduces family poverty. 1 The federal EITC lifted 4.4 million people out of poverty in 2003, including 2.4 million children.2 Without the EITC, the poverty rate among American children would be one-fourth higher.3 Yet information gaps exist by race, with fewer Black and Hispanic families knowing about the EITC,4 likely reducing the percent of children of color benefiting from the credit. Targeted outreach to communities of color could ensure all low-income working families benefit from the EITC. Recipients with higher incomes are more likely to apply their EITC toward longer-term investments that help them build assets, including education, housing improvements, or savings; though many families use the refunds on housing, groceries, child care, transportation, and health care costs.5 According to the Internal Revenue Service, 97 percent of the tax credit is spent in the recipients’ local communities.6 The federal EITC is a refundable tax credit, meaning that if the value of the credit exceeds the tax filer’s tax liability, the taxpayer receives the difference between the two amounts. The refundable nature of the credit helps offset other taxes that low-income workers pay, such as payroll or sales taxes. The EITC returns money directly to low-income
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Source: The Brookings Institution, EITC Interactive Website.

Several states have instituted a statelevel, refundable EITC to further help working families meet basic needs and increase their opportunity to build assets to help weather financial challenges.8 A refundable state EITC in Kentucky would begin paying benefits quickly – with little administrative cost and without requiring the creation of more governmental infrastructure. Implementing an EITC in Kentucky would give thousands of lowincome working families additional funds to address their immediate needs and, for some, a few extra dollars to save for achieving long-term financial stability.

Kentuckians, supplementing low wages. The total value of federal EITC claims by Kentucky taxpayers was $635 million for tax year 2005.7 The average EITC value for a Kentucky taxpayer was $1,731 in tax year 2003, $1,775 in tax year 2004, and $1,821 in tax year 2005. The average and total value of the federal EITC in Kentucky continues to increase each year as more filers qualify and take advantage of the credit. Of 1.74 million federal tax returns filed by Kentuckians in tax year 2005, 20 percent included an EITC claim. In all, 345,000 Kentucky tax filers received the EITC, and many more children and spouses benefited from the credit. While about 20 percent of federal tax filers in Kentucky received the federal EITC, the proportion of EITC recipients varied from county to county. In 2005, 21 Kentucky counties had 30 percent or more of tax filers receiving the EITC, with a high of 39 percent in McCreary County. The rate of EITC returns was less than 15 percent in just 10 counties. Even in Oldham County, the state’s wealthiest, nearly one in ten filers claimed the federal EITC.

Data Source: The Brookings Institution, EITC Interactive website. Rate Calculation: (number of filers claiming EITC in 2000 / total number of federal tax filers in 2000) (number of filers claiming EITC in 2005 / total number of federal tax filers in 2005) 1 Greenstein, R. (2005). The Earned Income Tax Credit: Boosting Employment, Aiding the Working Poor. Center on Budget and Policy Priorities. Available at http://www.cbpp.org. Accessed September 2008. 2 Ibid. 3 Ibid. 4 Maag, E. (2005). Disparities in Knowledge of the EITC. Tax Policy Center. Available at http://www.taxpolicycenter.org. Accessed September 2008. 5 Smeeding, T., Phillips, K., and O’Connor, M. (2002). “The Earned Income Tax Credit: Expectation, Knowledge, Use, and Economic and Social Mobility,” In B. D. Meyer and D. Holtz-Eakin (Eds.), Making Work Pay: The Earned Income Tax Credit and Its Impact on America’s Families. New York: Russell Sage Foundation Publications. 6 Cunningham Group Consultants (2008). The Federal Earned Income Tax Credit, Impact Analysis Report: Tax Year 2006. 7 Center on Budget and Policy Priorities. EITC Participation for Tax Year 2005 and 2004. Available at http://www.cbpp.org. Accessed September 2008. 8 Smeeding, T., Phillips, K., and O’Connor, M. (2002). “The Earned Income Tax Credit: Expectation, Knowledge, Use, and Economic and Social Mobility,” In B. D. Meyer and D. Holtz-Eakin (Eds.), Making Work Pay: The Earned Income Tax Credit and Its Impact on America’s Families. New York: Russell Sage Foundation Publications.

Economic Well-Being

Earned Income Tax Credit returns (number & percent of all filers)
2000
Kentucky Adair Allen Anderson Ballard Barren Bath Bell Boone Bourbon Boyd Boyle Bracken Breathitt Breckinridge Bullitt Butler Caldwell Calloway Campbell Carlisle Carroll Carter Casey Christian Clark Clay Clinton Crittenden Cumberland Daviess Edmonson Elliott Estill Fayette Fleming Floyd Franklin Fulton Gallatin Garrard Total EITC returns 296,297 1,598 1,341 1,051 547 2,927 1,064 3,010 3,736 1,400 3,531 1,891 728 1,423 1,542 3,771 1,049 1,003 2,038 4,660 395 903 2,653 1,591 6,140 2,297 2,159 1,087 586 718 6,098 1,000 456 1,351 14,797 1,342 3,951 3,009 708 525 1,129 Percent of all filers 17 26 19 13 16 18 25 31 9 17 17 16 19 30 19 13 21 18 15 11 18 20 24 26 20 16 32 30 16 28 15 21 28 24 13 23 27 13 24 18 19

2005
Total EITC returns 345,336 1,831 1,685 1,426 649 3,717 1,189 3,142 5,277 1,584 3,949 2,225 821 1,540 1,777 4,895 1,119 1,078 2,624 5,244 452 1,001 3,091 1,765 8,184 2,672 2,239 1,170 685 727 7,298 1,153 487 1,521 17,962 1,446 3,904 3,740 755 701 1,368 Percent of all filers 20 28 23 16 19 22 26 33 11 19 20 19 22 33 22 16 23 20 19 13 21 22 28 30 29 18 35 32 19 29 18 24 31 28 15 24 28 16 28 20 21 Grant Graves Grayson Green Greenup Hancock Hardin Harlan Harrison Hart Henderson Henry Hickman Hopkins Jackson Jefferson Jessamine Johnson Kenton Knott Knox LaRue Laurel Lawrence Lee Leslie Letcher Lewis Lincoln Livingston Logan Lyon McCracken McCreary McLean Madison Magoffin Marion Marshall Martin Mason Total EITC returns 1,861 2,746 2,028 963 2,651 487 6,548 3,008 1,299 1,633 3,179 1,096 402 3,717 1,438 50,883 2,663 1,953 8,323 1,312 3,539 985 4,876 1,434 703 1,131 2,147 1,410 1,988 737 1,986 429 4,759 1,994 711 4,737 1,261 1,492 1,866 1,070 1,390

2000
Percent of all filers 17 18 22 22 18 13 16 30 16 24 16 16 20 19 31 15 16 26 12 28 30 18 24 27 30 30 27 29 22 18 18 14 16 37 18 17 31 20 14 29 19

2005
Total EITC returns 2,145 3,151 2,332 1,071 3,080 526 8,245 3,014 1,506 1,788 3,567 1,275 368 3,918 1,449 59,243 3,340 2,178 10,349 1,384 5,359 1,204 5,544 1,425 705 1,158 2,154 1,629 2,447 777 2,318 493 5,611 2,005 765 5,804 1,352 1,621 2,112 1,030 1,541 Percent of all filers 21 21 25 25 21 15 20 31 19 26 18 19 21 20 31 18 19 27 14 28 32 21 26 27 31 30 26 33 26 19 22 16 19 39 19 19 33 22 16 29 22 Meade Menifee Mercer Metcalfe Monroe Montgomery Morgan Muhlenberg Nelson Nicholas Ohio Oldham Owen Owsley Pendleton Perry Pike Powell Pulaski Robertson Rockcastle Rowan Russell Scott Shelby Simpson Spencer Taylor Todd Trigg Trimble Union Warren Washington Wayne Webster Whitley Wolfe Woodford Total EITC returns 1,837 589 1,414 1,034 1,056 1,935 1,251 2,489 2,644 556 1,818 1,466 621 500 921 2,971 5,319 1,369 5,085 146 1,492 1,568 1,558 1,993 1,910 1,177 618 1,885 880 852 619 1,085 6,369 817 1,993 1,062 3,444 772 1,142

2000
Percent of all filers 16 27 15 26 24 20 28 20 15 19 20 7 19 35 16 27 23 26 22 20 25 20 26 14 13 17 12 20 19 16 18 17 16 17 28 18 29 31 11

2005
Total EITC returns 2,281 665 1,714 1,171 1,157 2,358 1,341 2,840 3,342 599 2,148 2,027 765 484 1,189 3,203 5,309 1,540 5,797 164 1,689 1,868 1,832 2,653 2,343 1,572 782 2,230 1,071 996 665 1,124 8,365 938 2,313 1,114 3,856 755 1,384 Percent of all filers 20 30 18 29 27 23 30 23 18 22 23 9 21 36 19 29 24 30 24 21 28 24 29 15 15 21 13 23 23 18 18 19 19 20 31 20 31 34 13

Earned Income Tax Credit

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2008 Kentucky KIDS COUNT Data Book

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