CRS Updates Earned Income Tax Credit Overview

The Earned Income Tax Credit (EITC): How It Works and Who Receives It

August 7, 2020

Congressional Research Service
https://crsreports.congress.gov
R43805

Margot L. Crandall-Hollick
Acting Section Research Manager

Gene Falk
Specialist in Social Policy

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SUMMARY

The Earned Income Tax Credit (EITC) is a refundable tax credit available to eligible workers earning relatively low wages. Because the credit is refundable, an EITC recipient need not owe taxes to receive the benefit. Eligibility for and the amount of the EITC are based on a variety of factors, including residence and taxpayer ID requirements, the presence of qualifying children, age requirements for childless recipients, and the recipient's investment income and earned income. Taxpayers with income above certain thresholds — these thresholds are based on marital status and number of qualifying children — are ineligible for the credit.

The EITC varies based on a recipient's earned income. Specifically, the EITC phases in as a percentage of earned income (the “credit rate”) until the credit amount reaches its maximum level. The EITC then remains at its maximum level over a subsequent range of earned income, between the “earned income amount” and the “phaseout amount threshold.” Finally, the credit gradually decreases to zero at a fixed rate (the “phaseout rate”) for each additional dollar of adjusted gross income (AGI) (or earned income, whichever is greater) above the phaseout amount threshold. The specific values of these EITC parameters (e.g., credit rate, earned income amount) vary depending on several factors, including the number of qualifying children a taxpayer has and the taxpayer's marital status, as illustrated below. For 2020, the maximum EITC for a taxpayer without children is $538 per year. In contrast, the 2020 maximum EITC for a taxpayer with one child is $3,584 per year; for two children, $5,920 per year; and for three or more children, $6,660 per year.

The EITC is provided to individuals and families once a year, in a lump-sum payment after individuals and families file their federal income tax returns. Like all tax credits, the EITC can reduce income tax liability. And because the EITC is a refundable tax credit, if a taxpayer's EITC is greater than what they owe in income taxes, they can receive the difference (the portion of the credit that remains after offsetting any income tax liability) as part of their annual tax refund. The amount of the credit that remains after offsetting any income tax liability is often referred to as the refundable portion of the EITC, whereas the amount that reduces income tax liability is referred to as the nonrefundable portion of the credit. A taxpayer who has no income tax liability will receive all of the EITC as the refundable portion of the credit.

The amount of the credit a taxpayer receives is based on the prior year's earned income and family composition (marital status and number of qualifying children). In other words, the 2020 EITC — which is based on 2020 earned income (and other 2020 factors) — will not be paid until 2021.

The EITC cannot be counted as income in determining eligibility for or the amount of any federally funded public benefit program. An EITC refund that is saved by a taxpayer does not count against the resource limits of any federally funded public benefit program for 12 months after the refund is received.

For 2017 (i.e., 2017 tax returns filed in 2018), 27 million taxpayers (18% of all taxpayers) received a total of $66.4 billion from the EITC, making the credit the largest need-tested antipoverty program that provides cash benefits. In that year, 97% of all EITC dollars were received by families with children. However, there was considerable variation in EITC receipt by state, with a greater share filed in certain southern states compared to other regions of the country.

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Contents

Introduction

Eligibility for the EITC

Calculating the EITC5

Payment of the EITC

Data on EITC Receipt

Figures

Figure 1. Maximum EITC by Number of Qualifying Children, 2020

Figure 2. EITC for an Unmarried Taxpayer with One Child by Income, 2020

Figure 3. Number of Tax Returns with the EITC, 1975-2017

Figure 4. Total EITC Dollars, 1975-2017

Figure 5. Average EITC, 1975-2017

Figure 6. Distribution of Total EITC Dollars by Number of Qualifying Children, 2017

Figure 7. Number of Tax Returns with the EITC by Number of Qualifying Children, 2017

Figure 8. Average EITC by Number of Qualifying Children, 2017

Figure 9. Number of Tax Returns with the EITC and Average EITC by Adjusted Gross Income (AGI), 2017

Figure 10. Distribution of Total EITC Dollars by Marital Status and Number of Qualifying Children, 2017

Figure 11. Percentage of Tax Returns with the EITC by State, 2017

Tables

Table 1. EITC Tax Parameters by Marital Status and Number of Qualifying Children, 2020

Table 2. Maximum AGI to Qualify for the EITC, by Number of Qualifying Children and Filing Status, 2020

Table A-1. EITC Receipt, 1975-2017

Table A-2. Average EITC, Number of Tax Returns with the EITC, and Total EITC by Qualifying Children and Adjusted Gross Income, 2017

Table A-3. EITC Receipt by State, 2017

Table A-4. EITC Participation Rates by State, 2009-2016

Appendixes

Appendix. Additional Tables

Contacts

Author Information

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Introduction

The Earned Income Tax Credit (EITC) is a refundable tax credit available to eligible workers with relatively low earnings. Because the credit is refundable, an EITC recipient need not owe taxes to receive the benefit. The credit is authorized by Section 32 of the Internal Revenue Code (IRC §32) and administered as part of the federal income tax system. According to IRS data, 27 million taxpayers received a total of $66.4 billion from the EITC for 2017, making the credit the largest need-tested antipoverty program that provides cash benefits.

Under current law, the EITC is calculated based on a recipient's earned income, using one of eight different formulas, which vary depending on several factors, including the number of qualifying children a taxpayer has (zero, one, two, or three or more) and his or her marital status (unmarried or married). All else being equal, the amount of the credit tends to increase with the number of eligible children the EITC recipient has. Indeed, most of the EITC's benefits — 97% of EITC dollars for 2017 — went to families with children.

This report provides an overview of the EITC, first discussing eligibility requirements for the credit, followed by how the credit is computed and paid. The report then provides data on the growth of the EITC since it was first enacted in 1975. Finally, the report concludes with data on the EITC from 2017 tax returns, examining EITC receipt by number of qualifying children, income level, tax filing status, and location of residence.

Eligibility for the EITC

A taxpayer must fulfill the following requirements to claim the EITC:

Additionally, a taxpayer with income above a certain dollar amount (labeled as “income where credit = 0” in Table 1) will be ineligible for the credit. Given that this income level is dependent on the number of qualifying children and marital status of the taxpayer, this requirement is discussed in greater detail in the section of the report entitled “Calculating the EITC.”

Requirements (1) through (8) are discussed in detail below.

Filing a Federal Income Tax Return

A person must file a federal income tax return to be eligible for the EITC. Those who do not file a federal income tax return cannot receive the EITC.

The EITC can be claimed by taxpayers filing their tax return as married filing jointly, head of household, or single.⁶ Taxpayers cannot claim the EITC if they use the filing status of married filing separately. If the taxpayer has a qualifying child, the taxpayer must include the child's name and Social Security number on a separate schedule (Schedule EIC) filed with the federal tax return.⁷

Earned Income

A taxpayer must have earned income to claim the EITC. Earned income for the EITC is defined as wages, tips, and other compensation included in gross income. It also includes net self-employment income (self-employment income after deduction of one-half of Social Security payroll taxes paid by a self-employed individual). In addition, according to the Internal Revenue Service, those who provide care for disabled individuals and receive certain nontaxable payments under a Medicaid waiver may treat those payments as earned income for the purposes of the EITC.⁸

In addition, service members may elect to include combat pay in their earned income when calculating the EITC. All income earned by a member of the Armed Forces while in a designated combat zone is considered combat pay and is normally not included in taxable income. However, a taxpayer may elect to include combat pay as earned income for the purpose of calculating the EITC.⁹ Generally, service members will make this election if it results in a larger credit. (Using combat pay to calculate the EITC does not make the combat pay taxable income.)

Certain forms of income are not considered earned income for the purpose of the EITC. These include pension and annuity income, income of nonresident aliens not from a U.S. business, income earned while incarcerated for work in a prison, and TANF benefits paid in exchange for participation in work experience or community service activities.

Finally, taxpayers who claim the foreign earned income exclusion (i.e., they file Form 2555 or Form 2555EZ with their federal income tax return) are ineligible to claim the EITC.¹⁰

Residency Requirements

Under current law, an EITC recipient must be a resident of the United States, unless the recipient resides in another country because of U.S. military service.

Qualifying Children

An EITC recipient's qualifying child must meet three requirements.¹¹ First, the child must have a specific relationship to the taxpayer (son, daughter, step child or foster child,¹² brother, sister, half-brother, half-sister, step brother, step sister, or descendent of such a relative). Second, the child must share a residence with the taxpayer for more than half the year in the United States.¹³ Third, the child must meet certain age requirements; namely, the child must be under the age of 19 (or age 24, if a full-time student) or be permanently and totally disabled.

As a result of these three requirements, a child may be the qualifying child of more than one taxpayer in the same household. For example, a child who lives with a single parent, grandparent, and aunt in the same home could be a qualifying child of all three of these individuals. But only one of these individuals can claim the qualifying child for the EITC, and the others cannot. In these cases, “tiebreaker” rules for who can claim the child for the EITC apply.¹⁴ If, as a result of these rules, a taxpayer cannot claim any qualifying children for the EITC, the taxpayer may be able to claim the credit for those with no qualifying children.¹⁵

Age Requirements for EITC Recipients with No Qualifying Children

If a taxpayer has no qualifying children, he or she must be between 25 and 64 years of age to be eligible for the EITC. There is no age requirement for taxpayers with qualifying children.

Investment Income

A taxpayer with investment income over a certain dollar amount is ineligible for the EITC. For 2020, the limit on investment income is $3,650. Investment income is defined as interest income (including tax-exempt interest), dividends, net rent, net capital gains, and net passive income. It also includes royalties that are from sources other than the filer's ordinary business activities.

Disallowance of the EITC Due to Fraud or Reckless Disregard of Rules

A taxpayer is barred from claiming the EITC for a period of 10 years after the IRS makes a final determination to reduce or disallow a taxpayer's EITC because that individual made a fraudulent EITC claim. A taxpayer is barred from claiming the EITC for a period of two years after the IRS determines that the individual made an EITC claim “due to reckless and intentional disregard of the rules” of the EITC, but that disregard was not found to be fraud.¹⁶

Identification Requirements

To be eligible for the credit, the taxpayer must provide valid Social Security numbers (SSNs) for work purposes for themselves, spouses if married filing jointly, and any qualifying children.¹⁷ The SSNs must be issued before the due date of the income tax return.¹⁸ (U.S. citizenship is not required to be eligible for the credit. SSNs do not indicate U.S. citizenship.) Nonresident aliens — those who do not have green cards or do not spend sufficient time in the United States — are generally ineligible for the EITC.¹⁹

Calculating the EITC

The EITC amount is based on formulas that consider earned income, number of qualifying children, marital status, and adjusted gross income (AGI). In general, the EITC equals a fixed percentage (the “credit rate”) of earned income until the credit reaches its maximum amount. The EITC then remains at its maximum level over a subsequent range of earned income, between the “earned income amount” and the “phaseout amount threshold.” Finally, the credit gradually decreases in value to zero at a fixed rate (the “phaseout rate”) for each additional dollar of earned income or AGI (whichever is greater) above the phaseout amount threshold. The specific values of these EITC parameters (e.g., credit rate, earned income amount, etc.) vary depending on several factors, including the number of qualifying children a taxpayer has and his or her marital status, as illustrated in Table 1.

Table 1. EITC Tax Parameters by Marital Status

Number of Qualifying Children	0	1	2	3 or more
unmarried taxpayers (single and head of household filers)
credit rate	7.65%	34%	40%	45%
earned income amount	$7,030	$10,540	$14,800	$14,800
maximum credit amount	$538	$3,584	$5,920	$6,660
phaseout amount threshold	$8,790	$19,330	$19,330	$19,330
phaseout rate	7.65%	15.98%	21.06%	21.06%
income where credit = 0	$15,820	$41,756	$47,440	$50,954
married taxpayers (married filing jointly)
credit rate	7.65%	34%	40%	45%
earned income amount	$7,030	$10,540	$14,800	$14,800
maximum credit amount	$538	$3,584	$5,920	$6,660
phaseout amount threshold	$14,680	$25,220	$25,220	$25,220
phaseout rate	7.65%	15.98%	21.06%	21.06%
income where credit = 0	$21,710	$47,646	$53,330	$56,844
Source: IRS Revenue Procedure 2019-44 and Internal Revenue Code (IRC) §32.

The EITC ranges from a maximum credit of $538 for a taxpayer without a child to $6,660 for a taxpayer with three or more qualifying children, as illustrated in Figure 1.

The phaseout amount threshold varies by both the number of qualifying children a taxpayer has and his or her marital status. The phaseout amount threshold for those who are married filing joint returns is $5,890 greater than for unmarried filing statuses with the same number of children. (Taxpayers who file as married filing separately are ineligible for the EITC.) This higher phaseout amount threshold for married taxpayers reduces (but generally does not eliminate) potential “marriage penalties” in the EITC whereby the credit for a married couple is less than the combined credit of two unmarried recipients.

Figure 2 illustrates the EITC amount by earned income level for an unmarried taxpayer with one child for 2020. It shows the three distinct ranges of EITC for this family:

• Phase-in Range: The EITC increases with earned income from the first dollar of earned income up to earned income of $10,540. Over this earned income range, the credit equals the credit rate (34% for a taxpayer with one child) times the amount of annual earned income. The $10,540 threshold is called the earned income amount and is the level at which the EITC ceases to increase with earned income. The income interval up to the earned income amount, where the EITC increases with earned income, is known as the phase-in range.

• Plateau: The EITC remains at its maximum level of $3,584 from the earned income amount ($10,540) until $19,330. The $3,584 credit represents the maximum credit for a taxpayer with one child in 2020. The income interval with the EITC fixed at its maximum value represents the plateau on Figure 2.

• Phaseout Range: Once adjusted gross income (or if greater, earned income) exceeds $19,330, the EITC is reduced for every additional dollar over that amount. The $19,330 threshold is known as the phaseout amount threshold for a single taxpayer with one child in 2020. For each dollar over the phaseout amount threshold, the EITC is reduced by 15.98%. The 15.98% rate is known as the phaseout rate. The income interval from the phaseout income level until the EITC is completely phased out is known as the phaseout range.

The EITC is completely phased out (EITC = $0) once the taxpayer's AGI (or earned income, whichever is greater) reaches $41,756. The earned income amounts and the phaseout amount thresholds are adjusted each year for inflation.

EITC claimants use tables published by the IRS to calculate their credit amount based on their income, marital status, and number of qualifying children. The instructions for the federal income tax form show the EITC amounts in tables by income brackets (in $50 increments).²⁰

Income Limits for the EITC

As previously discussed, the amount of the EITC is reduced for each dollar of AGI (or earned income, if greater) above a certain dollar threshold, referred to as the phaseout amount threshold. That threshold, combined with the phaseout rate, results in a specific income level (referred to as “income where credit = 0” in Table 1) above which a taxpayer is ineligible for the credit. This income level, where the credit reaches zero, is sometimes referred to as the eligibility threshold.

As illustrated in Table 1, there are eight eligibility thresholds for the EITC depending on the number of qualifying children a taxpayer has and his or her marital status. The eligibility thresholds vary every year given that they are based in part on a parameter of the credit — the phaseout amount threshold — that is adjusted for inflation. Table 2 shows the EITC eligibility thresholds for 2020. An EITC claimant's AGI (or earned income, if higher) must be below these thresholds for the claimant to qualify for the EITC. In 2020, these thresholds range from $15,820 for an unmarried taxpayer with no qualifying child to $56,844 for a married taxpayer filing jointly with three or more qualified children.

Table 2 expresses these eligibility thresholds as a percentage of the 2020 poverty guidelines. For example, the poverty guideline for a family of three in 2020 was $21,720. Families of three with income at or below this amount are considered poor. The EITC eligibility threshold of $47,440 for an unmarried person filing jointly with two qualifying children was more than twice (218.4%) the poverty guideline for a family of that type.

Table 2 also expresses these eligibility thresholds as a percentage of the earned income of one worker who works at the federal minimum wage ($7.25 per hour), 40 hours per week, 52 weeks a year ($15,080 annually). For the purposes of the calculations in Table 2, married EITC recipients are assumed to have the same aggregate annual earned income as unmarried recipients — $15,080. The EITC is available in 2020 to families with children who have earned income between 2.8 to 3.8 times the annual earnings from a minimum wage job (276. 9% to 376.9% of $15,080).

Table 2. Maximum AGI to Qualify for the EITC, by Number of Qualifying Children and Filing Status, 2020

	No Qualifying Children	One Qualifying Children	Two Qualifying Children	Three or More Qualifying Children
Unmarried	$15,820	$41,756	$47,440	$50,594
Married Filing Jointly	$21,710	$47,646	$53,330	$56,844
As a percentage of the poverty threshold
Unmarried	124.0%	242.2%	218.4%	193.1%a
Married Filing Jointly	125.9%	219.4%	203.5%	185.3%b
As a percentage of earned income at the federal minimum wage 40 hours per week, 52 weeks per year
Unmarried	104.9%	276.9%	314.6%	335.5%
Married Filing Jointly	144.0%	316.0%	353.6%	376.9%
Source: Congressional Research Service, based on IRS Revenue Procedure 2019-44, Internal Revenue Code (IRC) §32 and the 2020 Poverty Guidelines available at https://aspe.hhs.gov/poverty-guidelines. a. Represents the EITC AGI threshold divided by the poverty guidelines for a family of 4 b. Represents the EITC AGI threshold divided by the poverty guidelines for a family of 5.

Payment of the EITC

The EITC is provided to individuals and families annually in a lump-sum payment after a taxpayer files a federal income tax return.²¹ Like all tax credits, the EITC can reduce income tax liability. And because the EITC is a refundable tax credit, if a taxpayer's EITC is greater than what they owe in income taxes, they can receive the difference (the portion of the credit that remains after offsetting any income tax liability) as part of their annual tax refund. The amount of the credit that remains after offsetting any income tax liability is often referred to as the refundable portion of the EITC, whereas the amount that reduces income tax liability is referred to as the nonrefundable portion of the credit. A taxpayer who has no income tax liability will receive all of the EITC as the refundable portion of the credit.

The majority (85%) of the aggregate amount of the EITC — $66.4 billion for 2017 — is received as the refundable portion of the credit.²² In other words, for 2017, $56.8 billion of the EITC was received as the refundable portion of the credit (and hence exceeded income taxes owed), while approximately $9.7 billion offset tax liabilities.

The EITC is taken against all taxes reported on the federal individual income tax return (Form 1040) after all nonrefundable credits have been taken.²³ On the tax form, the EITC can be found in the payments section after the lines for withholding and estimated tax payments.

The EITC benefits families when they file their income taxes. Thus, payments are generally based on the prior year's income, earned income, and family composition.²⁴ That is, the 2020 EITC, based on a taxpayer's earned income and family composition in 2020, will be paid in 2021. ²⁵ If the taxpayer is owed a refund, and that filer's return includes an EITC, that refund will be made on or after February 15.²⁶

Interaction with Other Tax Provisions

On the tax return, the EITC is calculated after total tax liability and all nonrefundable credits. Nonrefundable tax credits, which are taken against (reduce) income tax liability, include the Lifetime Learning credit,²⁷ the child and dependent care credit,²⁸ a savings credit,²⁹ and the nonrefundable portions of both the child credit³⁰ and the American Opportunity tax credit (AOTC).³¹ If an EITC-eligible family has any tax liability and receives one or more of these credits, the total amount of their EITC will remain unchanged, but the amount they receive as the refundable portion of the credit (i.e., the amount which exceeds income tax liability) will change. Specifically, if nonrefundable tax credits can reduce a family's tax liability, a greater amount of their EITC will be received as the refundable portion, and less will offset their tax liability.

For taxpayers whose income places them in the “phaseout range” of the credit, reducing their *income (all else being unchanged) will result in a larger EITC. (As illustrated in Figure 2, reducing income when a taxpayer is in the phaseout range results in the taxpayer increasing the amount of the credit they receive.) A variety of forms of income can be excluded from both AGI and earned income, reducing a taxpayer's AGI or earned income for purposes of calculating the credit. For example, pretax contributions to savings accounts for retirement or medical expenses are not included in either AGI or earned income. Hence, by making these contributions, EITC claimants whose precontribution income places them in the credit's phaseout range will reduce their AGI or earned income for purposes of calculating the EITC and thus receive a larger credit.³⁵

In contrast, for taxpayers whose earned income places them in the credit's “phase-in range”, reducing their earned income (all else unchanged) will result in a smaller EITC. (As previously noted, the credit phases in over a range of earned income, whereas it phases out based on adjusted gross income or earned income, whichever is greater.) As illustrated in Figure 2, reducing income when a taxpayer is in the phase-in range results in the taxpayer reducing the amount of the credit they receive. Generally, nontaxable income cannot be included in earned income for purposes of calculating the EITC. However, as previously discussed, service members may elect to include their nontaxable combat pay as earned income, for purposes of calculating the EITC. Generally, service members whose income (excluding their combat pay) places them in the phase-in range will elect to include their combat pay in earned income for purposes of calculating the EITC in order to receive a larger credit.

Treatment of the EITC for Need-Tested Benefit Programs

By law, the EITC cannot be counted as income in determining eligibility for, or the amount of, any federally funded public benefit program, including Supplemental Nutrition Assistance Program (SNAP) food assistance, low-income housing, Medicaid, Supplemental Security Income (SSI), and Temporary Assistance for Needy Families (TANF).³⁶ An EITC that is saved by the filer does not count against the resource limits of any federally funded public benefit program for 12 months after the refund is received.

Data on EITC Receipt

The EITC was first enacted in 1975 as a temporary measure meant to encourage economic growth in the face of the 1974 recession and rising food and energy prices. It was also originally intended to “assist in encouraging people to obtain employment, reducing the unemployment rate, and reducing the welfare rolls.”³⁷ Over time the list of EITC objectives has grown to include poverty reduction. Today the EITC is the largest need-tested, antipoverty program that provides cash benefits. This section first provides a historical overview of the growth of the EITC from 1975 to 2017; it then examines information on EITC receipt for 2017.

Trends in EITC Receipt from 1975 to 2017

When originally enacted by the Tax Reduction Act of 1975 (P.L. 94-12), the EITC was a temporary refundable tax credit in effect for 1975. For that year, 6.2 million taxpayers received $1.25 billion from the EITC (in constant 2017 dollars, this equals $5.7 billion). The credit was extended several more times on a temporary basis and made permanent by the Revenue Act of 1978 (P.L. 95-600). Legislation enacted in 1986 (P.L. 99-514), 1990 (P.L. 101-508), 1993 (P.L. 103-66), 2001 (P.L. 107-16), and 2009 (P.L. 111-5) increased the amount of the credit by changing the credit formula. For more information on the legislative history of the EITC, see CRS Report R44825, The Earned Income Tax Credit (EITC): A Brief Legislative History, by Margot L. Crandall-Hollick.

Before 1990, the credit amount was calculated as a percentage of earned income (“the credit rate”) up until the earned income amount. The credit then remained at its maximum level before gradually decreasing in value as earned income increased. Legislative changes to the credit made during this time generally increased the amount of the credit in a variety of ways, including increasing the credit rate, increasing the earned income amount, increasing the phaseout amount threshold, and decreasing the phaseout rate.

Beginning in 1990 and more substantially in 1993, the credit formula was revised such that the credit amount varied based on earned income and, to a certain extent, the number of qualifying children. This essentially increased the credit by family size. In addition, in 1993, Congress made workers without qualifying children eligible for the EITC for the first time, although the credit was smaller than the credit for claimants with qualifying children.

In 2001, the credit formula was revised again so that it also varied based in part on marital status. As a result of this change, often referred to as “marriage penalty relief,” certain married taxpayers would receive a larger credit than unmarried taxpayers with the same number of children. In 2009, the marriage penalty relief was expanded further and a larger credit was created for families with three or more children. These 2009 changes were extended several times and made permanent by P.L. 114-113.

Figure 3 shows the number of taxpayers receiving the EITC for 1975 to 2017. Figure 4 shows the amount of the EITC received, with dollar amounts adjusted for inflation to represent 2017 dollars. The figures show the effects of the legislative expansions of the EITC, with the credit experiencing growth in the late 1980s through the mid-1990s and then again in the 2000s. As shown on Figure 4, throughout the history of the EITC, a relatively small share of the credit reduces regular federal income tax liability. The majority of credit dollars exceed taxes owed, and are hence received as the refundable portion of the credit.

The growth in the total amount of EITC dollars in the late 1980s to the mid-1990s was due to increases not only in the number of taxpayers eligible for the credit, but also in the average credit amount. Figure 5 shows the average EITC for 1975 to 2017, in inflation-adjusted (2017) dollars. Before the 1986 Tax Reform Act (P.L. 99-514), EITC thresholds were not indexed for inflation, and the average credit lost value each year. However, the 1986 act increased the credit's monetary parameters for prior inflation and adjusted the threshold amounts and maximum credits annually for inflation in future years. The credit formula was also revised in 1990 and then again in 1993 such that the amount of the credit depended to a certain extent on family size. These changes resulted in an increasing average credit between the late 1980s and late 1990s. Since then, the average credit has largely maintained its real value. However, increases in the average credit amount in 2001 and 2009 were likely due to legislative changes that included larger credits for some married claimants and for families with three or more children.³⁸ The average EITC for 2017 was $2,458.

EITC Receipt for 2017

For 2017, 27 million taxpayers received $66.4 billion from the EITC.

By Number of Qualifying Children

Most EITC recipients, and those who received the most EITC dollars, were families with children. Figure 6 shows total EITC dollars for 2017 by number of qualifying children. For 2017, 3% of all EITC dollars were received by taxpayers with no qualifying children and 97% were received by taxpayers with qualifying children: 35% were received by taxpayers with one qualifying child, 40% were received by taxpayers with two qualifying children, and 22% were received by taxpayers with three or more qualifying children.

Though childless taxpayers received 3% of all EITC dollars for 2017, they accounted for more than a quarter (26%) of all EITC recipients. Thus, their small share of total EITC dollars reflects, in part, the lower credit amount available to childless filers.

Figure 7 shows the number of returns with the EITC for 2017 by number of qualifying children. Figure 8 shows the average EITC for 2017 by number of qualifying children. The average EITC for 2017 increased with the number of qualifying children:

• The EITC was received by 7.0 million taxpayers with no qualifying children, with an average credit of $299.

• The EITC was received by 9.7 million filers with one qualifying child, with an average credit of $2,389.

• The EITC was received by 6.8 million filers with two qualifying children, with an average credit of $3,858.

• The EITC was received by 3.5 million filers with three or more qualifying children, with an average credit of $4,252.

By Income Level

Though the EITC is targeted toward lower-income earners, taxpayers with children may receive the EITC even with income well above the poverty level. (The federal poverty level for a family of three is $21,720 in 2020; it was $20,420 in 2017.) However, the largest EITC benefits are focused on low-income earners near the poverty line, with those with greater earned income receiving reduced benefits.

Figure 9 shows the number of tax returns with the EITC for 2017 by adjusted gross income (AGI) level. Figure 9 shows that the $10,000-$14,999 AGI bracket accounted for the greatest number of 2017 tax returns that included the EITC — 5.9 million. For 2017, close to half (47%) of all returns with the EITC had AGIs below $15,000. For context, a full-time full-year worker earning the federal minimum wage would have an AGI of $15,080.³⁹

Figure 9 also shows the average EITC by AGI category. Average EITC benefits first increase with AGI, then decline. This outcome reflects the formula for determining the EITC, which provides an increasing credit up to a maximum amount, then ultimately a reduced credit as it is phased out above a certain income threshold (see Table 1 and Figure 2). It also reflects a difference in the mix of family types receiving the EITC in the various AGI categories. For example, nearly three-quarters (73%) of all EITC recipients with AGIs of less than $5,000 had no qualifying children. All EITC recipients with AGIs above $25,000 for 2017 had qualifying children, and hence were eligible for a larger maximum EITC benefit than filers without children. For detail on returns with the EITC by AGI and number of qualifying children, see Table A-2.

By Filing and Marital Status

The IRS's National Taxpayer Advocate (NTA) provided data on EITC receipt by filing status in a special 2019 report to Congress (the IRS does not routinely provide data on EITC receipt by filing status in the Statistics of Income annual data releases). According to the NTA report, for 2017, unmarried taxpayers (head of household and single filing statuses) received approximately three-quarters of all EITC dollars, with over half (59%) received by unmarried taxpayers with one or two qualifying children. Figure 10 shows estimates of the distribution of total EITC dollars by filing status and number of qualifying children for 2017.

By Region

For 2017, 18% of all taxpayers received the EITC. However, the share of taxpayers receiving the EITC varies considerably by state. For 2017, the state with the highest percentage of returns receiving the EITC was Mississippi, with 30% of all filers receiving the credit. In contrast, 11% of all taxpayers in New Hampshire received the EITC for that year.

Figure 11 provides a map showing the percentage of all 2017 federal income tax returns that included an EITC for each state. In addition to considerable state variation, the map shows that there is a regional pattern to EITC receipt. A greater share of taxpayers in certain southern states received the EITC than those in other regions of the country. The EITC was received on the smallest percentage of returns in New England, as well as some states in the northern Midwest.

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Appendix
Additional Tables

Author Information

Margot L. Crandall-Hollick
Acting Section Research Manager

Gene Falk
Specialist in Social Policy

Acknowledgments

The authors would like to thank Joseph Hughes, Research Assistant in the Government Finance and Taxation Section, for his assistance in updating this report and CRS graphics specialist Jamie Hutchinson for creating the original figures in this report.