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Earned Income Tax Credit (EITC)
The Earned Income Tax Credit (EITC), enacted by Congress in 1975, is a refundable tax credit that increases the income of low-and-moderate income working families through the provision of tax reductions and wage supplements. The program’s primary purpose is to aid employed workers in achieving and maintaining their independence from traditional public assistance by making work more attractive and supplementing low hourly wages.
The EITC has been widely praised for its effectiveness in reducing poverty and has been instrumental in closing the poverty gap for the country’s working poor. Specifically, the EITC is the largest poverty relief program in the country. Since low-income families pay little or no taxes, the refunds received represent increases in income, not reductions in taxes owed, providing a greater level of support. The EITC is designed to fill a gap between what can be earned in the labor market and what is required to meet household needs.
There has been broad bipartisan agreement that a two-parent family, one being a full-time, minimum-wage worker, should not have to raise its children in poverty. For an average family of four, at the federal minimum wage's current level, such a family can move above the poverty line only if it receives the EITC as well as supplemental nutritional assistance program (SNAP) benefits.
For young children, moving out of poverty is particularly important. Research has found that lifting income in early childhood not only improves a child's immediate educational outcomes, but is associated with more schooling, more hours worked, and higher earnings in adulthood. Another study showed a link between an increase in the EITC for families with more than two children and an increase in achievement in middle childhood for the children of these families. Researchers also believe that increased income can led to improved health for parents – that in turn, helps them to better support their children’s learning.
Clearly, the need for all eligible families to claim and receive the EITC is critical. It is estimated 20% of those eligible do not claim this valuable credit thus creating the need for innovative outreach strategies and Volunteer Income Tax Assistance (VITA) programs. VITA programs help low-income, working families make their way through the tax code, claiming the full amount of any tax refund for which they are qualified. Without VITA help, many struggling households will turn to the help of commercial tax preparers who charge fees in excess of $350. Since 2005, over 1,000 volunteers serving the VITA program in Cuyahoga County have saved EITC filers at least $7 million in fees and high interest loans. Additionally, some 15% of our clients would otherwise not file their taxes if not for the free tax services.
With funding providing by Cuyahoga Job and Family Services, United Way Services, Internal Revenue Services, and several financial institutions, the Cuyahoga County EITC Coalition has been able to serve over 55,000 clients, resulting in more than $70 million refunds. Our client surveys indicate that most families use the EITC to pay for basic necessities, such as housing, food, and transportation and in some cases, to obtain additional education or training to boost their employability and earning power. This type of spending improves the health of local economies and creates a much needed “ripple effect” leading to more vibrant, stable communities. As a result of the refunds brought to Cuyahoga County, the Coalition returns $26 to the local economy for every dollar spent on Coalition program costs.
Cuyahoga County EITC Coalition
A community coalition that promotes economic prosperity and improves lives through Volunteer Tax Preparation Assistance (VITA) and asset building activities that move low-and-moderate income families from financial uncertainty to financial security.
- Community leaders across sectors promote economic well-being of all workers with low incomes;
- Low- income workers understand and take advantage of asset-building resources;
- Neighborhoods that are free from predatory financial practices;
- Low-income communities that focus on building a strong economic asset base.
The Coalition achieves its vision by
- Providing high quality, free tax preparation through dedicated volunteers working in neighborhood based locations;
- Making financial counseling accessible and giving families the tools to make good financial decisions;
- Advocating for policies and practices that create a financial system that works for all.
The Coalition delivers
- Community Awareness – by creating sufficient knowledge in the community about eligibility for the EITC and other financial and government benefits to reach everyone who qualifies.
- Easy Access – by ensuring everyone eligible for Coalition services has the opportunity to obtain them quickly and simply resulting in the avoidance of costly transaction fees and other expenses.
- Financial Empowerment – by providing recipients of tax preparation services the chance to engage in sound financial practices that build economic security and allows households to achieve the goals they themselves set.
- Consumer Protection – by delivering financially based services to low-and-moderate income workers that are free of predatory interference.
- Economic Development – by offering a service that helps low-and-moderate income workers claim the earned income tax credit resulting in millions of dollars being spent in local economies.