EITC Boosts Low-Income Americans, But Some Don't Take Advantage

March 26, 2012 — -- While the Earned Income Tax Credit assists families with children who have lower incomes, helping reduce the poverty rate while also providing a work incentive, about one in five eligible filers may not be taking advantage of the program, which is why advocates are trying to raise awareness toward the end of the tax-filing season.

Lack of awareness among the "newly poor," could be one reason why eligible filers don't know they are available, said Rod West, Entergy's chief administrative officer, whose company has been working with the IRS and United Way to raise awareness of the program.

About 27 million working families and individuals received the EITC in the 2009 tax year, the most recent year in which data is available, according to the Center on Budget and Policy Priorities. The center said that in 2010, the EITC helped boost about 6.3 million people out of poverty, including 3.3 million children.

While there has been criticism that some EITC filers don't pay any taxes at all, the Center of Budget and Policy Priorities said over the long term, those filers paid more in taxes than they received in benefits in a study from the period of 1989 through 2006.

Entergy, an energy company based in New Orleans, has promoted the EITC to its 2.7 million customers in Texas, Arkansas, Louisiana and Mississippi as part of an outreach effort for about a decade.

The company has mailed customers 2.2 million statement stuffers, sent automated phone calls this year and initiated a number of ways to educate filers about the EITC.

When asked why an energy company would be promoting this credit, Rod West, Entergy's chief administrative officer, said because of our economy, the company recognizes many families in its service territory have lived at or below the poverty line.

"The need is more prevalent because of the economic strife the country is facing," he said. "We started about 10 years ago and we're just glad the word is getting out with the importance of EITC with so many families struggling."

With the EITC, Nekki Nelson, 26, bought her first home to raise her three children, ages 2, 5, and 6. She said the tax credit is a significant boost to her income and is especially helpful because it is immediately available in the form of cash for necessary expenses.

"I have young kids and I thought they deserve a place of their own, their own backyard, a little bit of privacy," the gas station manager in Jefferson Parish, La., said. "They just like to go out and play."

Nelson said she received a $4,715 refund last month and used part of it for the down payment of a home.

Depending on marital status and the number of dependent children, working families with children that have annual incomes below about $36,900 to $50,300 may be eligible for the federal EITC, while several states have their own programs. Working, low-income people without children with incomes below about $13,900, or $19,200 for a married couple, can receive a small tax credit.

While the credit has been a boost to struggling families with children, it is still not enough for single taxpayers without kids, claims the National Community Tax Coalition. The top credit amount for a single filer is only $464 in the 2011 tax year for a taxpayer earning between $6,050 and $7,600, which is as little as 6.1 percent of earnings.

Established under President Gerald Ford in 1975 and based on a policy proposal by President Richard Nixon's administration, most families don't claim the EITC for very long stretches, with one in five keeping the credit for five or more consecutive years, according to research published in the Public Finance Reiew in Sept. 2011.

During the 2009 tax year, the average EITC was $2,770 for a family with children and $259 for a family without children. The amount of the credit rises with earned income until it reaches a maximum level and then phases out with higher income.

Workers receive the credit beginning with their first dollar of earned income, which provides more incentive for program participants to work and receive an income, said Ron Haskins, senior fellow with the Brookings Institution.

Haskins said the EITC is "a crucial program because it really helps low income families and makes a bigger impact than almost any other proam we have."

"In my opinion, it's way better than the minimum wage in boosting the income of low income workers," he said. "I'm a Republican and not necessarily a cheerleader for public expenditures, but this is a good one."

Haskins said the estimated 80 percent penetration rate shows the popularity of the program and prevalance among low-income workers.

Families mostly use the EITC to pay for necessities, like repairing homes and commuting for work, said the Center on Budget and Policy Priorities.