The earned income tax credit (EITC) subsidizes low-income working families. The credit equals a fixed percentage of earnings from the first dollar of earnings until the credit reaches its maximum; both the percentage and the maximum credit depend on the number of children in the family. The credit then stays flat at that maximum as earnings continue to rise, but eventually earnings reach a phase-out range. From that point the credit falls with each additional dollar of income until it disappears entirely (figures 1 and 2). The phaseout begins at a higher income for married couples than for single parents. The credit is fully refundable: any excess beyond a family’s income tax liability is paid as a tax refund.
Tables T13-0263. Distribution of the Tax Benefits of the Earned Income Tax Credit by Cash Income Class and Percentile
Table T07-0093. Options to Expand the Earned Income Tax Credit for Families with Three or More Children
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Authors: Elaine Maag and Adam Carasso
Last updated: February 12, 2014