Over the past forty years, the EITC has become established as one of our nation’s most effective antipoverty programs. In 2013, over 27 million working families and individuals received the EITC, and 9 million were lifted out of poverty. The federal tax credit has been shown over and over to encourage and reward work, boost incomes, and offset federal payroll and income taxes.
For its most of its history, the EITC has been delivered one way -- a lump sum payment at tax time. New research suggests different delivery methods could promote family financial stability and, in some cases, help grow family assets. A number of recent proposals are taking closer look at the timing of EITC delivery, proposing alternatives to the lump-sum payment model. A pilot project in Chicago led by the Center for Economic Progress explored quarterly EITC delivery in advance of the tax filing deadline; the Center for American Progress has proposed an early partial refund; and the CFED Rainy Day EITC proposes a partial deferral plus a savings match.
This webinar, presented January 14, 2016 - co-sponsored by the EITC Funders Network and Asset Funders Network - for funders and philanthropic advisors explained the context for exploring payment alternatives (including lessons learned from the underutilized, former Advance EITC option), the recent proposals and pilots that have emerged, and the role of funders in exploring both the ideas behind and the logistics around periodic payment proposals.
Steve Holt, Principal, Holt Solutions and author of Periodic Payment of the EITC Revisited
David Marzahl, President and CEO, Center for Economic Process
Patrick Hain, The Annie E. Casey Foundation
Abby Hughes Holsclaw, Asset Funders Network
Ami Nagle, EITC Funders Network
Learn More - the EITC
Periodic payment of the Earned Income Tax Credit revisited (link will open to article below)
from the Brookings Insitution, By Steve Holt. Article published December 17, 2015
(Click here to read the new report discussed in the article below.)
By supplementing earnings for low- and moderate-income households, the EITC helps bridge the gap between what the labor market provides and what it takes to support a family. It encourages and rewards work and has become one of the nation’s largest and most effective anti-poverty programs. In contrast to other work support and poverty alleviation programs, it achieves this with very little bureaucracy beyond what otherwise exists to administer the tax code.
Although the EITC began in 1975 as a small credit (no more than $400), a number of targeted expansions in subsequent years mean that today the EITC’s assistance can be considerable. In 2015, a single parent with three children working full-time all year at the federal minimum wage ($7.25 an hour) is eligible for a credit of $6,242, a boost of more than 40 percent above her earnings of $15,080 (though combined it still leaves her 12 percent below the federal poverty level).
However, the only way to obtain these substantial benefits is to claim the EITC on the annual federal income tax return. While lump-sum payments have perceived benefits (such as being able to pay off debts, make larger purchases, or force savings), the EITC’s single annual disbursement can present a challenge for the working parent trying to make ends meet throughout the year. It can also be problematic for households wanting to stretch out their refund as an emergency savings reserve.
My 2008 paper, “Periodic Payment of the Earned Income Tax Credit,” proposed an option that would allow a family to receive a portion of the EITC outside of tax time, striking a balance between lump-sum delivery and the need for resources throughout the year. Specifically, half of the credit could be claimed in four payments spread out during the year, while the remaining credit would continue to be paid as part of the tax refund.
Since then, several significant developments have occurred. A little-used option for receiving some of the EITC in each paycheck ended in 2010. In 2014, the federal government initiated a new tax credit advance payment process to subsidize health insurance premiums through monthly disbursement of the Affordable Care Act’s Premium Tax Credit. Other countries providing assistance similar to the EITC have continued to innovate and offer access to benefits during the year. Finally, members of Congress and think tanks have proposed alternatives to a single lump-sum disbursement of the EITC, and others have begun to explore and experiment with alternatives, most notably in Chicago, where a 2014 pilot program made quarterly payments to 343 households.
In light of these developments, this paper reviews the author’s original EITC periodic payment proposal, examines emerging alternatives, and addresses the following key questions:
What is the demand for periodic payment alternatives?
What benefits will accrue from the availability of periodic payment?
What risks are associated with periodic payment and how can they be managed?
What is the administrative feasibility of periodic payment?
The emerging answers point a way forward for identifying different distribution options that would enhance the EITC’s value to low- and moderate-income working families.