Tax Group Says This Is One Of The Most Effective, Yet Often Overlooked, Tax Credits | Connecticut Public Radio

Tax Group Says This Is One Of The Most Effective, Yet Often Overlooked, Tax Credits

Apr 10, 2018

As tax time comes down to the wire, an advocacy group is trying to raise awareness of one very under-used tax credit. It’s called the Earned Income Tax Credit, and it’s been boosting the income of low-wage workers for more than 40 years. But it’s still such a well-kept secret that it’s estimated as many as one in five people who are eligible never claim it. 

Jennifer Sanchez is a funds administrator at Lifebridge Community Services in Bridgeport. She spends her day checking the eligibility of clients for benefits and services, trying to make sure everyone gets the help they need. But a few years ago, there was a tax credit she wasn’t aware she could claim herself.

“The EITC program I did not know about," she said. "It’s an additional assistance basically for me, I can speak personally, you know, because it does help.”

Circumstances differ, but households earning less than $54,000 a year, and single people earning less than  $48,000 could be eligible for the federal and state versions of the credit, depending on the number of children they have.

Once her tax preparer clued her in, Sanchez now gets a direct deposit of several hundred dollars in addition to her refund, something that, as a single mother with three small kids, she can definitely use.

“Because then I’m also able to save," she said. "Not just catch up on daily life, but save for a rainy day.”

Sanchez isn’t alone in being in the dark about the EITC.

“There is a significant gap between those who may be eligible and those who actually take it up. To the tune, we’re saying last year, of $53.4 billion,” said Chris Jacobs of the advocacy group Communally.

The group operates a web based platform trying to increase the uptake of benefits like SNAP, Medicaid and the EITC in communities around the country, as a way to lift people out of poverty.

“At state and at city and county level, there is a real interest in those communities in bringing that money into the local economy, and helping these people stabilize,” he said.

And the group finds that while Connecticut does an excellent job at distributing food stamps and signing people up for Medicaid -- with well over 90 percent take-up among those who are eligible -- this state, along with the rest of the country, does a poor job at advertising the Earned Income Tax Credit.

Between 15 and 20 percent of those who might qualify, don’t claim it.

Here’s one of the reasons why. In order to claim the EITC, you need to file a tax return.

“If you’re lower income, and you might think - I don’t need to file my return because I know I don’t owe anything, and that may well be true, you should still go in and file your tax return, because you may find out that you’re entitled to a pretty big tax refund and the Earned Income Tax Credit may be part of that,” said Jim Horan, CEO of the Connecticut Association for Human Services.

In other words, the EITC is what’s called a refundable tax credit. That means even if you didn’t have to pay any taxes, you can still get the credit; up to $2,000 on your federal return and somewhere close to $500 on your state return, depending on your income.

“$2,500 is pretty substantial especially because the average household that receives the EITC, their earnings are only about $18,500 a year so that’s more than ten percent of their annual income,” said Horan.

The federal EITC was introduced by the Republican administration of Gerald Ford back in the 1970s, and has had bipartisan support since, as what's generally acknowledged to be one of the most effective anti-poverty programs the government operates.

“The reason it’s so effective is because it encourages work," Horan explains. "Studies have shown that it's especially effective in getting single women - mothers - into the workforce.”

The EITC doesn’t have a cliff, like other benefits including food stamps. Once you reach a certain income level, they stop abruptly, leaving you actually worse off for working. The EITC instead slopes gently downwards as you earn more.

Horan said despite its long and successful history, he’s worried the current generation of policymakers don’t understand the EITC. For instance, Connecticut’s state EITC, introduced in 2011 after more than a decade of campaigning, has been cut back in recent budget rounds by a Democratic legislature.

“I’ve sometimes heard legislators say -- oh it’s just another form of welfare -- which is exactly the opposite of what it’s supposed to be. It’s rewarding low wage work, and encouraging people to work more.”

Horan said with currently around a quarter of the jobs available in Connecticut offering wages that qualify for the EITC, that’s a lot of money that should be boosting our poor communities.