The Earned Income Tax Credit: Current Issues and Benefit Amounts

Publication Date: September 2000

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Banking and finance

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Abstract:

The earned income tax credit (EITC), established in the tax code in 1975, offers cash aid to working parents with relatively low incomes who care for dependent children. (Smaller credits began in 1994 for low-income workers with no children.) The EITC is the only federal cash aid available to all working poor families with children. For eligible filers with income tax liability, the EITC reduces their taxes. However, most of the credits go to those who owe either no taxes or amounts smaller than their credits. These people receive lump-sum credits in the form of U.S. Treasury checks at the end of the tax year. A small minority (less than 5%) of EITC claimants receive advance credits with their paychecks. To be eligible for the advance EITC, the employee must have a qualifying child. In January, 2000, President Clinton announced a proposal to expand the EITC. In its FY2001 budget, the Administration estimates the cost of that proposal to be $11.5 billion over 5 years. Most recently, the President vetoed marriage penalty legislation (H.R. 4810), which included provisions to modify the EITC. This short report is updated periodically as legislative activity and new program data require.