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Getting More People to Use the EITC

Ilana Novick

A quarter of the eligible recipients do not take advantage of the Earned Income Tax Credit. So it's a good thing that tomorrow, February 1, will be the seventh annual "EITC Awareness Day," with the IRS rolling out a virtual assistant on its website, and working with accountants and financial assistance providers all over the country to raise the number of taxpayers filing for a tax credit that can make a huge difference in the lives of low-income workers. 

As the Tax Policy Center explains, the credit amount equals a fixed percentage of earnings from the first dollar of earnings until the credit reaches a maximum; both of which depend on the number of children in the family. The amount of the credit stays flat until a phase out point, which depends on how many children the family has, and how high the recipient's income has risen. 

The EITC is unique in that conservatives and liberals alike can agree on its effectiveness (unlike many forms of government assistance to low-income Americans), as it rewards recipients who work. As Paul Marotta writes in Forbes, "studies suggest it increases employment rates. And because it operates as part of the tax code, it is free of the waste normally associated with entitlement programs." Of course, the article goes on to argue that the EITC discourages marriage, but this is still comparatively high praise. "This credit is not only reducing poverty, but stimulating employment, so there's definitely an increased effort on the part of the government to let people know it's out there."

Despite these benefits, the complicated rules and requirements for eligibility and for claiming the credit, means many of the 26 million Americans who are actually eligible for the EITC don't take advantage of it. In addition, you must file a tax return, even if you earn so little that you do not owe any tax and are not required to file. 

For those who do claim the credit, it makes a noticeable difference in poverty reduction. According to 2012 data from the Center for Budget and Policy Priorities, "these payments helped an estimated 6.3 million people escape poverty in 2010." 

It's great that tomorrow is "Earned Income Tax Awareness Day," but clearly this once-annual push isn't enough. The U.S. Department of Labor, along with its state and city counterparts, should prod employers to alert workers about the EITC and mount a larger marketing push to publicize the tax credit. 

Everyone wins when EITC uptake increases: employers see their low-wage workers effectively get a raise, the economy gets a boost because workers have more spending money, and -- most of all -- low-income parents have more resources to help raise their children.