ȱ
‘ŽȱŠ›—Žȱ —Œ˜–ŽȱŠ¡ȱ›Ž’ȱǻ ǼDZȱ—ȱ
ŸŽ›Ÿ’Ž ȱ
‘›’œ’—ŽȱŒ˜ȱ
™ŽŒ’Š•’œȱ’—ȱ˜Œ’Š•ȱ˜•’Œ¢ȱ
Š—žŠ›¢ȱřǰȱŘŖŖŞȱ
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŝȬśŝŖŖȱ
   ǯŒ›œǯ˜Ÿȱ
řŗŝŜŞȱ
ȱŽ™˜›ȱ˜›ȱ˜—›Žœœ
Pr
epared for Members and Committees of Congress

‘ŽȱŠ›—Žȱ —Œ˜–ŽȱŠ¡ȱ›Ž’ȱǻ ǼDZȱ—ȱŸŽ›Ÿ’Ž ȱ
ȱ
ž––Š›¢ȱ
The Earned Income Tax Credit (EITC or EIC) began in 1975 as a temporary program to return a
portion of the Social Security tax paid by lower income taxpayers, and was made permanent in
1978. In the 1990s, the program became a major component of federal efforts to reduce poverty,
and is now the largest anti-poverty entitlement program. Childless adults in 2005 (the latest year
for which data are available) received an average EITC of $230, families with one child received
an average EITC of $1,809, and families with two or more children received an average EITC of
$2,833.
A low-income worker must file an annual income tax return to receive the EITC and meet certain
requirements for income and age. A tax filer cannot be a dependent of another tax filer and must
be a resident of the United States unless overseas because of military duty. The EITC is based on
income and whether the tax filer has a qualifying child.
The EITC interacts with several nonrefundable federal tax credits to the extent lower income
workers can utilize the credits to reduce tax liability before the EITC. Income from the credit is
not used to determine eligibility or benefits for means tested programs. However, 19 states and
the District of Columbia now offer an EITC for state taxes, and most of them are based on the
federal EITC. Any change in the federal EITC would flow down to impact the state EITC.
Policy issues for the EITC, which reflect either the structure, impact, or administration of the
credit include the work incentive effects of the credit; the marriage penalty for couples filing joint
tax returns; the anti-poverty effectiveness of the credit (primarily a family size issue); and
potential abuse (i.e., compliance with credit law and regulations).
The National Taxpayer Advocate heads an independent program within the Internal Revenue
Service (IRS) to handle taxpayer problems not resolved through normal channels, and to identify
issues that create problems for taxpayers. As part of identifying problems for taxpayers, the
National Taxpayer Advocate prepares a report each year to Congress summarizing at least 20 of
the most serious problems faced by taxpayers with recommendations to resolve the problems. In
the reports for 2002 through 2005, EITC related problems have been included among the “most
serious problems.” In the 2006 report, while the EITC was not listed as a specific problem,
concerns about the EITC and low-income taxpayers are components of some of the “more serious
problems.” This report will be updated annually.

˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ

‘ŽȱŠ›—Žȱ —Œ˜–ŽȱŠ¡ȱ›Ž’ȱǻ ǼDZȱ—ȱŸŽ›Ÿ’Ž ȱ
ȱ
˜—Ž—œȱ
Eligibility .................................................................................................................................. 1
Families with Children........................................................................................................ 1
Childless Adults .................................................................................................................. 2
Credit Amount........................................................................................................................... 2
Calculation of EITC Amount .............................................................................................. 2
Indexing .............................................................................................................................. 6
Marginal Tax Rates ............................................................................................................. 7
Participation .............................................................................................................................. 8
Characteristics of Tax Year 2005 EITC Tax Returns............................................................... 10
Number of Children .......................................................................................................... 10
Filing Status ...................................................................................................................... 10
Geographic Distribution.....................................................................................................11
Interaction With Other Tax Provisions.................................................................................... 13
Other Federal Tax Credits ................................................................................................. 13
Means Tested Programs .................................................................................................... 13
State EITC Provisions....................................................................................................... 13
Issues ....................................................................................................................................... 13
Work Incentives ................................................................................................................ 13
Marriage Penalty............................................................................................................... 14
Anti-Poverty Effectiveness (Family Size) ........................................................................ 15
Compliance ............................................................................................................................. 16
National Taxpayer Advocate’s “Most Serious Problems”....................................................... 17

’ž›Žœȱ
Figure 1. EITC Levels by Income, Single-Parent Family with One Child, Tax Year 2007............. 4
Figure 2. Statutory and Marginal Tax Rates, Single-Parent Family with One Child, Tax
Year 2007 ..................................................................................................................................... 8

Š‹•Žœȱ
Table 1. EITC Parameters for Tax Years 2006-2008 ....................................................................... 4
Table 2. EITC and Recipients 1975-2005 ....................................................................................... 9
Table 3. Percent Distribution of Returns and Total EITC by Number of Children, Tax
Year 2005 ................................................................................................................................... 10
Table 4. EITC by Number of Children, Tax Year 2005 ................................................................. 10
Table 5. Percent Distribution of Returns and Total EITC by Tax Filing Status, Tax Year
2005.............................................................................................................................................11
Table 6. Federal EITC Recipients and EITC Amount by State, Tax Year 2005 .............................11
Table 7. Impact of Family Size on Net Income after Taxes Relative to Poverty Threshold,
Tax Year 2006............................................................................................................................. 15
Table B-1. EITC Parameters, 1975-2008 ...................................................................................... 26
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ

‘ŽȱŠ›—Žȱ —Œ˜–ŽȱŠ¡ȱ›Ž’ȱǻ ǼDZȱ—ȱŸŽ›Ÿ’Ž ȱ
ȱ

™™Ž—’¡Žœȱ
Appendix A. Legislative History of the EITC............................................................................... 19
Appendix B. History of the EITC Parameters............................................................................... 26

˜—ŠŒœȱ
Author Contact Information .......................................................................................................... 28

˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ

‘ŽȱŠ›—Žȱ —Œ˜–ŽȱŠ¡ȱ›Ž’ȱǻ ǼDZȱ—ȱŸŽ›Ÿ’Ž ȱ
ȱ
he Earned Income Tax Credit (EITC) program began in 1975 as a temporary and small
(6.2 million recipients) program to reduce the tax burden on working low-income families.
T The program has grown into the largest federal anti-poverty cash program1 with 22.8
million tax filers receiving $42.4 billion in tax credits for tax year 2005. Appendix A outlines the
history of the EITC and Appendix B shows how the parameters for calculating the EITC have
changed since the original enactment in 1975.
•’’‹’•’¢ȱ
The EITC is a refundable tax credit available to eligible workers earning relatively low wages.
Under current law there are two categories of EITC recipients: childless adults and families with
children. Because the credit is refundable, an EITC recipient need not owe taxes to receive the
benefits. An EITC eligible family may also receive a portion of the credit in the form of advanced
payments. Eligibility for, and the size of, the EITC is based on income, age, residence, and the
presence of qualifying children.
Š–’•’Žœȱ ’‘ȱ‘’•›Ž—ȱ
For a family to receive the EITC, the family must have adjusted gross income (AGI) and earned
income below the amount which reduces the EITC to $0, and have investment income no greater
than $2,200 (indexed for inflation). Investment income includes interest income (including tax-
exempt interest), dividends, net rent and royalties that are from sources other than the filer’s
ordinary business activity, net capital gains, and net passive income.
Earned income includes wages, tips, and other compensation included in gross income and self-
employment income after the deduction for self-employment taxes. Earned income does not
include pension or annuity income; income for nonresident aliens not from a U.S. business;
income earned while incarcerated (for work in prison); and to the extent subsidized, earnings
from a mandatory state work program.
The family must reside in the United States unless in another country because of U.S. military
duty. For tax year 2004, the child (or children) had to meet three requirements for a qualifying
child:
• relationship—the child must be a son, daughter or descendant of such
(grandchild); a brother, sister, or descendent of such (niece or nephew) cared for
by the taxpayer; or foster child;
• residence—the child must live with the taxpayer for more than half the year; and
• age—the child must be under age 19 (or age 24, if a full-time student) or be
permanently and totally disabled.
If a child qualified for more than one tax filer, the natural parent claimed the child. If the natural
parent was not one of the tax filers, the tax filer with the highest AGI claimed the child for the
EITC. If both tax filers were natural parents, the parent the child resided the longest with during

1 The EITC is larger in terms of spending and recipients than the Temporary Assistance to Needy Families (TANF)
program.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗȱ

‘ŽȱŠ›—Žȱ —Œ˜–ŽȱŠ¡ȱ›Ž’ȱǻ ǼDZȱ—ȱŸŽ›Ÿ’Ž ȱ
ȱ
the tax year claimed the child. If the child resided with each parent for the same period of time,
the filer with the larger AGI had to claim the child.2
Beginning in tax year 2005, the EITC, along with other tax provisions used by families (child tax
credit, head of household filing status, and dependent care tax provisions) became linked to a
more uniform definition of a child under the personal exemption tax provision changes made by
the Working Families Tax Relief Act of 2004 (P.L. 108-311). The definition of a child and the
rules for when more than one party may claim a child for these tax provisions are the same as the
rules for the EITC in tax year 2004. However, the interaction between the new definitions of a
qualifying child and a qualifying relative may impact who could claim a child under various tax
provisions.
Another change made by P.L. 108-311 affected families in which the taxpayer or spouse is in the
military. Although gross income for tax purposes does not generally include certain combat pay
earned by members of the armed forces, P.L. 108-311 allowed members of the armed forces to
include combat pay for purposes of computing the earned income credit for tax years that ended
after October 4, 2004, and before January 1, 2006 (generally tax years 2004 and 2005). The Gulf
Opportunity Zone Act of 2005 (P.L. 109-135) extended the option to include combat pay for
calculating the credit through tax year 2006 and the Tax Relief and Health Care Act of 2006 (P.L.
109-432) extended the option through tax year 2007.
The Katrina Emergency Relief Act (P.L. 109-73) provided that taxpayers affected by Hurricane
Katrina may use their tax year 2004 earned income to compute their 2005 EITC. P.L. 109-135
also extended the option of using 2004 income to compute 2005 EITC to taxpayers affected by
Hurricane Rita, and clarified that to use this election, the taxpayer’s 2005 income had to be less
than the taxpayer’s 2004 income.
‘’••Žœœȱž•œȱ
Childless adults must reside in the United States unless in another country because of U.S.
military duty. A childless adult must be at least 25 years of age, but not more than 64 years of age
to be eligible for the EITC, and cannot be claimed as a dependent on another person’s tax return.
Childless adults may include married couples if both persons meet eligibility requirements.
Eligibility is restricted to those with both earnings and AGI below the income amount which
reduces the EITC to $0, and investment income (as defined above) not in excess of $2,200
(indexed for inflation).
›Ž’ȱ–˜ž—ȱ
Š•Œž•Š’˜—ȱ˜ȱ ȱ–˜ž—ȱ
Claimants receive an EITC in one of four ways:

2 An eligibility rule that an unmarried filer must meet the requirements for “head of household” tax filer status to be
eligible for the EITC was dropped by Omnibus Budget Reconciliation Act (OBRA) of 1990. This status was difficult
for many low-income working mothers to meet since many of them received more than half their cash income from
AFDC, which is not regarded as self-support income by the IRS in determining “head of household” status.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
Řȱ

‘ŽȱŠ›—Žȱ —Œ˜–ŽȱŠ¡ȱ›Ž’ȱǻ ǼDZȱ—ȱŸŽ›Ÿ’Ž ȱ
ȱ
• as a reduction in income tax liability;
• as a year-end cash payment from the Treasury if the family has no income tax
liability;
• as a combination of reduced taxes and direct payments; or
• as advance payments by adjusting withholding.3
To receive an EITC, a person must file an income tax return at the end of the tax year, together
with a separate schedule (Schedule EIC) if claiming a qualifying child. An eligibility certificate
(Form W-5) must be filed with the employer to receive advance credits through the employer’s
payroll.
If the family (or childless adult) is eligible for the credit, the credit is based on the credit rate,
which varies with the number of children, and the earned income. Up to the maximum earned
income amount, the credit equals the earned income times the credit rate. During this phase-in
period for the credit, for each additional $1 of earned income the recipient receives an additional
credit equal to the credit rate. For example, in tax year 2007 for a family with one child, for each
additional $1 of earnings (up to a total earned income of $8,390) the family receives an additional
34 cents in EITC.
For earned income between the maximum earned income amount and the phase-out income level,
the EITC is constant at the maximum credit. Above the phase-out income level, for each
additional $1 of income the recipient loses credit at the phase-out rate. In tax year 2007, for a
family with one child, for each $1 of income above the phase-out level of income ($17,390 for
married couples, $15,390 for others), the recipient loses 15.98 cents of EITC. Graphically, the
phase-in period for the credit is steeper than the phase-out period because the credit is increased
faster during the phase-in than the credit is reduced during the phase-out.
In general, the EITC amount increases with earnings up to a point (the maximum earned income
eligible for the credit), then remains unchanged for a certain bracket of income (the plateau), and
then (beginning at the phase-out income level) gradually decreases to zero as earnings continue to
increase. Figure 1 provides a graphic representation of EITC levels, by income level for a single
parent family with one child.

3 Childless adults cannot receive the EITC through advance payments.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
řȱ


‘ŽȱŠ›—Žȱ —Œ˜–ŽȱŠ¡ȱ›Ž’ȱǻ ǼDZȱ—ȱŸŽ›Ÿ’Ž ȱ
ȱ
Figure 1. EITC Levels by Income, Single-Parent Family with One Child, Tax Year 2007

Source: Figure prepared by the Congressional Research Service (CRS).
The parameters for calculating the EITC (credit rates, phase-out rates, maximum earned income
amount, maximum credit amount, phase-out income level, and disqualifying investment income
level) for tax years 2006, 2007, and 2008 are shown in Table 1.
The EITC is taken against total tax liability (regular, alternative minimum, and self-employment
taxes) after several nonrefundable tax credits. Because the EITC is a refundable credit, on the tax
return the line for the EITC can be found in the payment section after the lines for withholding
and estimated tax payments. The individual income tax return booklet presents the EITC amounts
in tables by income brackets (in $50 increments). This allows a tax filer to look up the correct
amount of the EITC based on income, filing status, and number of children.
Table 1. EITC Parameters for Tax Years 2006-2008

Phase-
2006 2007 2008 Credit
Rate
Out
Rate
No children
— —
7.65%
7.65%
Maximum earned income amount
$5,380
$5,590
$5,720


Maximum credit
$412
$428
$438


Phase-out income level
$6,740
$7,000
$7,160


Phase-out income level for married filing joint
$8,740
$9,000
$10,160


Income where EITC = $0
$12,120
$12,590
$12,880


Income where EITC=$0 for married filing joint
$14,120
$14,590
$15,880


One child
— —
34.00%
15.98%
Maximum earned income amount
$8,080
$8,390
$8,580


˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
Śȱ

‘ŽȱŠ›—Žȱ —Œ˜–ŽȱŠ¡ȱ›Ž’ȱǻ ǼDZȱ—ȱŸŽ›Ÿ’Ž ȱ
ȱ

Phase-
2006 2007 2008 Credit
Rate
Out
Rate
Maximum credit
$2,747
$2,853
$2,917


Phase-out income level
$14,810
$15,390
$15,740


Phase-out income level for married filing joint
$16,810
$17,390
$18,740


Income where EITC = $0
$32,001
$33,241
$33,995


Income where EITC=$0 for married filing joint
$34,001
$35,241
$36,995


Two or more children
— —
40.00%
21.06%
Maximum earned income amount
$11,340
$11,790
$12,060


Maximum credit
$4,536
$4,716
$4,824


Phase-out income level
$14,810
$15,390
$15,740


Phase-out income level for married filing joint
$16,810
$17,390
$18,740


Income where EITC = $0
$36,348
$37,783
$38,646


Income where EITC=$0 for married filing joint
$38,348
$39,783
$41,646


Disqualifying investment income level
$2,800 $2,900 $2,950


Source: Table prepared by the Congressional Research Service (CRS).
Notes: To reflect the statutory language for calculating the inflation adjusted EITC parameters, the maximum
earned income amount and the phase-out income level are rounded to the nearest $10, whereas the
disqualifying income level is rounded to the nearest $50. In preparing their tax returns, tax filers will use a table
with $50 increments of income to look up their EITC amount.
A formula presentation of the EITC calculation follows (where category reflects EITC factors
based on the number of children and filing status as in Table 1, and adjusted gross income (AGI)
is equal to gross income from all taxable sources such as earned income, dividends, taxable
interest, alimony, capital gains, taxable pensions, etc. less statutory adjustments).
EITC =
Lesser of: earned income or maximum earnings amount category
times
credit ratecategory
minus
Greater of 0 or [earned income (or AGI whichever is larger) minus phase-out income levelcategory
times phase-out ratecategory]
The following three examples for a married couple with 2 children in tax year 2007, illustrate
how the EITC is calculated.
Example 1. For a family receiving less than the maximum allowable credit, with earned income
and AGI of $10,000 (which is less than the maximum earned income amount):
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
śȱ

‘ŽȱŠ›—Žȱ —Œ˜–ŽȱŠ¡ȱ›Ž’ȱǻ ǼDZȱ—ȱŸŽ›Ÿ’Ž ȱ
ȱ
EITC = $10,000 times 40% = $4,000
Example 2. For a family receiving the maximum allowable with earned income and AGI of
$16,000 (which is greater than the maximum earned income amount but less than the phase-out
income level):
EITC= $11,790 (the maximum earned income amount) times 40%
= $4,716 (the maximum credit)
Example 3. For a family subject to the phase-out of EITC with earned income and AGI of
$20,000 (which is greater than the maximum earned income amount and the phase-out income
level):
EITC = $11,790 (the maximum earned income amount) times 40% or $4,716 (the
maximum credit)
minus
($2,610 (the amount by which income exceeds the phase-out income level[$17,390]
times 21.06%)
or $550
= $4,166
—Ž¡’—ȱ
With everything else held constant, when inflation increases income, taxes increase. In periods of
high inflation, this may result in increases in taxes which many view as a windfall to the
government. To reduce the impact of inflation on taxes certain tax provisions, such as the
personal exemption amount, are increased each year by the rate of inflation. The Tax Reform Act
of 1986 (P.L. 99-514) began indexing of the maximum earned income and the phase-out income
levels for the EITC. The structure of the EITC combined with indexing results in the largest
annual percentage increases in EITC going to higher income EITC eligible taxpayers. The effect
of indexing on the EITC between year 1 and year 2 can be defined for four groups of taxpayers:
• Tax filers below the year 1 maximum earned income level will have no increase
in the EITC between year 1 and year 2.
• Tax filers above the year 1 maximum earned income amounts and below the year
1 phase-out income level will have an increase in EITC equal to the change in the
maximum credit amount (the credit rate times the change in the maximum earned
income).
• Tax filers above the year 1 phase-out income amount but below the year 2 phase-
out income amount, will have an increase in EITC equal to the change in the
maximum credit plus the year 1 phase-out reduction in the EITC (the amount by
which their year 1 income exceeded the year 1 phase-out income times the phase-
out rate).
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
Ŝȱ

‘ŽȱŠ›—Žȱ —Œ˜–ŽȱŠ¡ȱ›Ž’ȱǻ ǼDZȱ—ȱŸŽ›Ÿ’Ž ȱ
ȱ
• Tax filers above the year 2 phase-out income level, will have a change in the
EITC that is fixed at every income level until the end of the phase-out range. The
change is calculated as:
Change in EITC (above phase-out income level)=
Change in Maximum Credit
plus
Change in Phase-out Income Level x Phase-out Rate
Š›’—Š•ȱŠ¡ȱŠŽœȱ
Marginal tax rates reflect the additional tax paid for each additional $1 of income earned (or
subject to tax). Economic theory suggests that the higher the marginal tax rate, the lower the
incentive to work to increase income. The structure of the EITC (phase-in, plateau, and phase-out
) creates a wide range of marginal tax rates for EITC recipients based on income. The marginal
tax rate for an EITC recipient, excluding interactions with other credits, can be broken down into
four ranges that correspond to the structure of the EITC:
• During the phase-in, when income is below the maximum earned income, the
marginal tax rate is negative and equal to the credit rate because for each
additional dollar of income the EITC recipient pays no income tax and receives
an increase in the EITC equal to the credit rate times the additional income.
• Once the income reaches the plateau level, the marginal rate is zero while there is
no tax liability and no change in the EITC amount (which is at the maximum).
• During the phase-out of the EITC, for each additional dollar of income the EITC
recipient will pay taxes at the marginal tax rate and have a reduction in the EITC
at the phase-out rate creating a marginal tax rate equal to the sum of the two
changes. This results in a marginal tax rate that is significantly higher than the
statutory tax rate.
• At the end of the phase-out of the EITC, when the EITC equals zero, the
marginal and statutory tax rates for the taxpayer are equal.
Figure 2 shows the statutory and marginal tax rates, in tax year 2007, as income increases for a
single parent family with one child. The marginal tax rates reflect the combined impact of the
statutory tax rate and the EITC phase-out and do not reflect the use of any other tax credits.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŝȱ

‘ŽȱŠ›—Žȱ —Œ˜–ŽȱŠ¡ȱ›Ž’ȱǻ ǼDZȱ—ȱŸŽ›Ÿ’Ž ȱ
ȱ
Figure 2. Statutory and Marginal Tax Rates, Single-Parent Family with One Child, Tax
Year 2007
0.4
Taxpayer no
longer eligible
0.3
for the EITC
0.2
0.1
$8,390
eta
0
R
$15,390
$25,850
$33,240
-0.1
-0.2
-0.3
-0.4
Income
StatutoryTax Rate
Marginal Tax Rate

Source: Figure prepared by the Congressional Research Service (CRS).
Š›’Œ’™Š’˜—ȱ
The EITC program has grown significantly since its inception in 1975. In 1975, there were 6.2
million recipients for a total of $1.2 billion in EITC, with 72.0% of the EITC received as a refund,
and an average EITC of $201. For tax year 2005, a total of 22.8 million tax filers received an
EITC, for a total of $42.4 billion. In 2005, the average EITC was $1,894, and 88.4% of the EITC
was received as a refund. Estimates of the percentage of EITC eligible families participating in
the EITC program (i.e., receiving an EITC ) ranged from 80%-86% in a 1993 study4 using 1990
data to 93%-96% for families with children in a 2001 study5 by the General Accounting Office
using 1999 data.
Table 2 provides the total EITC, refunded portion, number of recipients (tax filers), and average
credit for 1975 through 2005.

4 John Karl Sholz, “The Earned Income Credit: Participation, Compliance, and Antipoverty Effectiveness,” National
Tax Journal
, March 1994, vol. 47, no. 1, pp. 63-87.
5 U.S. General Accounting Office, Earned Income Tax Credit Participation, GAO-20-290R, December 14, 2001.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
Şȱ

‘ŽȱŠ›—Žȱ —Œ˜–ŽȱŠ¡ȱ›Ž’ȱǻ ǼDZȱ—ȱŸŽ›Ÿ’Ž ȱ
ȱ
Table 2. EITC and Recipients 1975-2005
Refunded
Number of
Average
Tax Year
Total EITC
($ millions)
Portion of EITC
Recipients
EITC
($ millions)
(thousands)
($)
1975 1,250
900
6,215 201
1976 1,295
890
6,473 200
1977 1,127
880
5,627 200
1978 1,048
801
5,192 202
1979 2,052
1,395
7,135 288
1980 1,986
1,370
6,954 286
1981 1,912
1,278
6,717 285
1982 1,775
1,222
6,395 278
1983 1,795
1,289
7,368 224
1984 1,638
1,162
6,376 257
1985 2,088
1,499
7,432 281
1986 2,009
1,479
7,156 281
1987 3,391
2,930
8,738 450
1988 5,896
4,257
11,148 529
1989 6,595
4,636
11,696 564
1990 7,542
5,266
12,542 601
1991 11,105
8,183
13,665 813
1992 13,028
9,959
14,097 924
1993 15,537
12,028
15,117 1,028
1994 21,105
16,598
19,017 1,110
1995 25,956
20,829
19,334 1,342
1996 28,825
23,157
19,464 1,481
1997 30,389
24,396
19,391 1,567
1998 32,340
27,175
20,273 1,595
1999 31,901
27,604
19,259 1,656
2000 32,296
27,803
19,277 1,675
2001 35,784
29,043
19,593 1,704
2002 37,786
33,258
21,574 1,751
2003 39,186
34,508
22,112 1,772
2004 40,024
35,299
22,270 1,797
2005 42,410
37,465
22,752 1,864
Sources: U.S. Congress, House Committee on Ways and Means. 2004 Green Book. Background Material and
Data on Programs Within the Jurisdiction of the Committee on Ways and Means, 108th Congress, 2nd session,
WMCP 108-6, Mar. 2004, p.13-41. Internal Revenue Service. Total File, United States, Individual Income and Tax
Data, by State and Size of Adjusted Gross Income, Tax Years 2003 through 2005. Expanded unpublished version,
Table 2.5.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
şȱ

‘ŽȱŠ›—Žȱ —Œ˜–ŽȱŠ¡ȱ›Ž’ȱǻ ǼDZȱ—ȱŸŽ›Ÿ’Ž ȱ
ȱ
Note: The number of recipients is the number of tax filers claiming the EITC.
‘Š›ŠŒŽ›’œ’Œœȱ˜ȱŠ¡ȱŽŠ›ȱŘŖŖśȱ ȱŠ¡ȱŽž›—œȱ
ž–‹Ž›ȱ˜ȱ‘’•›Ž—ȱ
In tax year 2005, the majority of the EITC (61.2%) went to families with two or more children,
which represented 40.9% of the returns. Table 3 shows the percent distribution of returns and
total EITC by number of children. Table 4 shows the number of recipients, amount of EITC, and
average EITC by number of children for tax year 2005.
Table 3. Percent Distribution of Returns and Total EITC by Number of Children, Tax
Year 2005

Percent of
Percent of
Total Returnsa
Total EITC
No children 21.2
2.6
One child
37.9
36.2
Two or more children
40.9
61.2
Total
100.0 100.0
Source: Table prepared by the Congressional Research Service (CRS) from data provided by the Joint
Committee on Taxation. Detail may not sum to total due to rounding.
a. Total returns is all returns claiming an EITC.
Table 4. EITC by Number of Children, Tax Year 2005
Number
Number of
Percent
of
Recipients
Total EITC
Average
of EITC
Children
(tax filers)
($ thousands)
EITC
Refunded
None 4,737,000
1,089,000
$230
68.9
One 8,479,000
15,430,000
$1,809
87.3
Two or More
9,146,000
25,915,000
$2,833
89.8
Source: Table prepared by the Congressional Research Service (CRS) from data provided by the Joint
Committee on Taxation.
’•’—ȱŠžœȱ
Heads of Household represented 53.2% of the EITC returns and 65.6% of the total EITC in 2005,
whereas single filers represented 24.2% of the returns and only 9.6% of the EITC. Table 5 shows
the percent distribution of returns and total EITC by filing status.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗŖȱ

‘ŽȱŠ›—Žȱ —Œ˜–ŽȱŠ¡ȱ›Ž’ȱǻ ǼDZȱ—ȱŸŽ›Ÿ’Ž ȱ
ȱ
Table 5. Percent Distribution of Returns and Total EITC by Tax Filing Status, Tax Year
2005
Filing Status
Percent of
Percent of
Total Returnsa
Total EITC
Single 24.2
9.6
Married joint
22.7
24.8
Head of household
53.2
65.6
Total
100.0
100.0
Source: Table prepared by the Congressional Research Service (CRS) from data provided by the Joint
Committee on Taxation. Detail may not add to total due to rounding.
a. Total returns is all returns claiming an EITC.
Ž˜›Š™‘’Œȱ’œ›’‹ž’˜—ȱ
The distribution of EITC by state is a function of the relative populations and income levels of the
states. In general states with larger populations or a large number of lower income workers will
have more EITC recipients. The number of federal EITC returns, the total EITC, average EITC,
and percent of the credit refunded by state for tax year 2005 are shown in Table 6.
Table 6. Federal EITC Recipients and EITC Amount by State, Tax Year 2005
Number of
Total EITC
Average
% of EITC

State
Returns
($ thousands)
EITC
Refunded

Alabama 502,914
1,089,650
2,166.67
91.1%
Alaska
41,578
65,838
1,583.48
89.1%
Arizona
413,730
771,178
1,863.96
90.2%
Arkansas
287,085
574,086
1,999.71
90.0%
California
2,501,510
4,575,681
1,829.17
84.9%
Colorado
274,839
461,368
1,678.68
87.2%
Connecticut 172,838
286,109
1,655.36
88.7%
Delaware
59,692
107,849
1,806.76
91.1%
District of Columbia
50,041
88,386
1,766.27
91.7%
Florida
1,631,758
3,054,048
1,871.63
86.7%
Georgia
905,365
1,876,182
2,072.29
89.7%
Hawaii

87,540
143,818
1,642.88
89.8%
Idaho
106,143
189,334
1,783.76
87.5%
Illinois
884,010
1,669,290
1,888.32
87.8%
Indiana
446,347
802,842
1,798.69
90.5%
Iowa
177,348
294,858
1,662.60
88.4%
Kansas
181,348
318,957
1,758.81
89.8%
Kentucky
352,878
642,625
1,821.10
89.3%
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗŗȱ

‘ŽȱŠ›—Žȱ —Œ˜–ŽȱŠ¡ȱ›Ž’ȱǻ ǼDZȱ—ȱŸŽ›Ÿ’Ž ȱ
ȱ
Total EITC

State
Number of
Returns
Average
% of EITC
($ thousands)
EITC
Refunded

Louisiana 494,289
1,088,921
2,203.00
91.7%
Maine
88,923
145,056
1,631.25
84.4%
Maryland
352,221
620,577
1,761.90
88.4%
Massachusetts
319,973
518,021
1,618.95
86.9%
Michigan
680,765
1,245,934
1,830.20
88.1%
Minnesota
272,171
442,074
1,624.25
87.1%
Mississippi
376,998
830,508
2,202.95
92.2%
Missouri
451,570
826,976
1,831.34
89.7%
Montana
74,627
125,715
1,684.58
86.7%
Nebraska
113,877
198,808
1,745.81
89.0%
Nevada
169,055
292,511
1,730.27
90.8%

New Hampshire
64,012
100,433
1,568.97
84.3%
New
Jersey
501,105
890,122
1,776.32
87.5%
New
Mexico
199,825
373,090
1,867.08
90.7%
New
York
1,527,318
2,774,885
1,816.84
84.4%
North
Carolina
788,523
1,526,465
1,935.85
90.5%
North
Dakota
40,222
66,353
1,649.67
88.1%
Ohio
815,691
1,471,341
1,803.80
89.9%
Oklahoma
318,879
607,091
1,903.83
88.9%
Oregon
231,934
390,857
1,685.21
87.9%
Pennsylvania
799,335
1,376,533
1,722.10
89.8%
Rhode
Island
68,034
119,536
1,757.00
89.1%
South
Carolina
439,010
864,267
1,968.67
91.7%
South
Dakota
56,415
95,967
1,701.09
89.2%
Tennessee
565,090
1,077,468
1,906.72
88.6%
Texas
2,288,849
4,826,049
2,108.50
88.0%
Utah
145,622
260,639
1,789.83
88.9%
Vermont
38,824
59,499
1,532.53
83.2%
Virginia
503,896
908,481
1,802.91
90.0%
Washington
364,929
617,971
1,693.40
88.7%
West
Virginia
146,840
256,234
1,744.99
91.0%
Wisconsin
309,552
522,675
1,688.49
88.9%
Wyoming
33,208
55,092
1,659.00
89.1%
U.S.
Total
22,718,546
42,588,248
1,874.60
88.3%
Source: Internal Revenue Service, Total File, All States, Individual Income and Tax Data, by State and Size of
Adjusted Gross Income, Tax Year 2005, Expanded unpublished version, Table 2.5. U.S. total does not include
outlying areas.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗŘȱ

‘ŽȱŠ›—Žȱ —Œ˜–ŽȱŠ¡ȱ›Ž’ȱǻ ǼDZȱ—ȱŸŽ›Ÿ’Ž ȱ
ȱ
—Ž›ŠŒ’˜—ȱ’‘ȱ‘Ž›ȱŠ¡ȱ›˜Ÿ’œ’˜—œȱ
‘Ž›ȱŽŽ›Š•ȱŠ¡ȱ›Ž’œȱ
On the tax return, the EITC is calculated after total tax liability and several nonrefundable credits.
The nonrefundable tax credits, which are taken against (reduce) tax liability, include credits for
education, dependent care, savings, and the child credit. To the extent an EITC eligible family has
a tax liability and can utilize one or more of these credits, the refundable portion of the family’s
EITC is higher. This is because using one or more of the tax credits reduces tax liability before
the EITC, but does not affect the calculation of the EITC.
For tax filers in the plateau or phase-out period of the EITC, pre-tax contributions to savings for
retirement, education or medical purposes can increase the amount of the EITC by reducing the
amount of “earned income” used to calculate the EITC, in addition to reducing tax liability before
the EITC if the contributions also qualify for a nonrefundable credit. This is because the earned
income for the EITC, like the income subject to tax, does not include these pre-tax contributions
as income.
ŽŠ—œȱŽœŽȱ›˜›Š–œȱ
By law, the EITC cannot be taken into account for purposes of determining eligibility or benefits
for food stamps, low-income housing, and Medicaid and Social Security Income (SSI). Under
Temporary Aid to Needy Families (TANF), the states have the authority to determine if the
receipt of an EITC is taken into consideration in determining eligibility or benefits. Currently, no
state does so. However, an EITC refund that is saved may become an asset and could be used in
determining TANF eligibility and benefits.
ŠŽȱ ȱ›˜Ÿ’œ’˜—œȱ
Currently, 19 states and the District of Columbia offer an EITC for state taxes. Of these
jurisdictions, three have a nonrefundable EITC. In 2008, three states (Louisiana, Michigan, and
North Carolina) will begin a refundable state EITC. For states with an EITC that is calculated
based on the federal EITC, a change in the federal EITC will generally flow through and change
the state EITC unless the state takes positive legislative action to alter or prevent the change.
œœžŽœȱ
The structure, impact, and administration of the EITC are reflected in the major policy issues—
work incentives, marriage penalty, anti-poverty effectiveness (family size), compliance, and the
use of paid tax preparers.
˜›”ȱ —ŒŽ—’ŸŽœȱ
Although the original purpose of the EITC was to return payroll taxes to low-income workers, in
its current form as a cash transfer program it provides assistance to working low income families
to meet basic needs. As such it may be viewed as creating an incentive to work, both in
participating in the labor force (beginning to work), and increases in work effort (more hours).
Economic theory suggests that the phase-in range of the EITC (when income is below the
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗřȱ

‘ŽȱŠ›—Žȱ —Œ˜–ŽȱŠ¡ȱ›Ž’ȱǻ ǼDZȱ—ȱŸŽ›Ÿ’Ž ȱ
ȱ
maximum earned income) would create an incentive to begin work, and to work more hours by
increasing the marginal return to work after taxes. This is because the EITC increases as work
increases and is reflected in the negative marginal tax rate during the phase-in range of the credit.
Conversely, the phase-out range of the EITC would create a disincentive to work because the
more the individual works and earns the greater the individual is penalized (although the after-tax
income is higher). The individual not only has to pay taxes at the statutory rate, but the earned
income credit is reduced by the phase-out rate. This is reflected in a marginal tax rate for the
phase-out period that is higher than the statutory tax rate. In the phase-out range, an individual
may attempt to maintain a level EITC by reducing work hours (substituting leisure for work).
However, many workers do not have the flexibility (in their jobs) to reduce hours.
Alternatively, the EITC can be viewed as a wage supplement for lower income workers. The
wage supplement increases the hourly wage rate over the phase-in range, the supplement remains
steady over the plateau range, and over the phase-out range the wage supplement is reduced,
reducing the hourly wage down to the level actually paid by the employer.
In evaluating the work incentives of the EITC it is important to remember that all of the benefits
and costs of work are not reflected in the marginal tax rate. A family receiving TANF benefits
may be required to work a stated number of hours to maintain certain non-cash benefits.
However, by working those hours the family earns income that may reduce other non-cash
benefits such as food stamps or housing allowances, and may require additional cash expenditures
for child care, clothing, etc.
Studies on the EITC and labor force participation have concluded that the EITC has a significant
positive impact on participation in the labor force, particularly for single mothers.6 Some studies
have concluded that there is a negative impact on work hours at the higher levels of income, but
that the impact is not significant.7
Š››’ŠŽȱŽ—Š•¢ȱ
The structure of the EITC may, depending on the relative income levels of both parties, impose a
“marriage penalty”8 on single low-income parents if they choose to marry. For example, in tax
year 2007 two single parents, each with one child and earned income of $15,000 would receive an
EITC of $2,853 each for a total of $5,706. If they marry, their combined income is $30,000, and
with two children, the EITC is $2,060. The EITC marriage penalty for the couple is $3,646. The
Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA, P.L. 107-16) reduced
the marriage penalty for the family by $421 in 2007. The EGTRRA provisions for marriage
penalty relief in the EITC will sunset at the end of 2010.

6 Bruce D. Meyer and Dan T. Rosenbaum, “Making Single Mothers Work: Recent Tax and Welfare Policy and Its
Effects,” National Tax Journal, vol. 53 (December 2000), pp. 1027-1043. Robert Moffitt, Welfare Programs and Labor
Supply
, National Bureau of Economic Research, Working Paper 9168, September 2002.
7 Stacy Dickert, Scott Houser, and John Karl Scholz, “The Earned Income Tax Credit and Transfer Programs: A Study
of Labor Market and Program Participation,” Tax Policy and the Economy, James M. Poterba ,ed. (National Bureau of
Economic Research and the MIT Press,1995), pp. 1-50. V. Joseph Hotz and John Karl Sholz, The Earned Income
Credit
, National Bureau of Economic Research, Working Paper 8078, January 2001.
8 The “marriage penalty” is the difference between the tax liability for a married couple (filing a joint tax return) and
the sum of the tax liabilities for each person if they each filed using the single filing status.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗŚȱ

‘ŽȱŠ›—Žȱ —Œ˜–ŽȱŠ¡ȱ›Ž’ȱǻ ǼDZȱ—ȱŸŽ›Ÿ’Ž ȱ
ȱ
Empirical research has concluded that the structure of the EITC, through the phase-out and the
marriage penalty, has a negative impact on the labor market participation of nonworking spouses
in two-parent families at higher income levels (levels of income in the plateau or phase-out range
of the EITC).9
—’Ȭ˜ŸŽ›¢ȱŽŒ’ŸŽ—ŽœœȱǻŠ–’•¢ȱ’£ŽǼȱ
While the EITC is available at incomes above the federal poverty thresholds, to the extent the
EITC is an anti-poverty program, one goal may be to keep families above the poverty threshold
(or level). The structure of the EITC with respect to family size has not changed since 1990.
Although benefits for most poverty related programs are related to family size, the family size
adjustment for the EITC is capped at two children. As a result, a low-income family with two
children may remain above the poverty threshold because of the EITC, while families with three
or more children at the same income level and EITC may slip below the poverty threshold. An
example for tax year 2006 is shown in Table 7.
Table 7. Impact of Family Size on Net Income after Taxes Relative to Poverty
Threshold, Tax Year 2006

Family 1.
Family 2.
Family 3.
Two Adults, Two Adults, Two Adults,
Two
Three
Four
Children
Children
Children
Income($) 20,000
20,000
20,000
Federal tax before credits ($)
0
0
0
Child credit (regular credit limited to tax before credits)
0 0 0
($)
EITC ($)
3,864
3,864
3,864
Additional child credit
1,305 1,305 1,305
(refundable portion of credit) ($)
Net tax refund after credits ($)
5,169
5,169
5,169
Payroll tax ($)
(1,530)
(1,530)
(1,530)
Net income after tax ($)
23,639
23,639
23,639
Poverty level ($)
20,444
24,059
26,938
Net income after tax as a percent of poverty level
115.6%
98.3%
87.8%
Source: Table prepared by the Congressional Research Service.
Certain childless adults, even if the adult receives the EITC, also may have a net income after tax
that is lower than the poverty threshold. In tax year 2006, a childless adult working full-time (40
hours a week for 52 weeks) at the minimum wage (in 2006) of $5.25 would earn $10,920. That
adult would receive an EITC of $92. However, when combined with a tax liability before credits

9 Nada Eissa and Hillary Williamson Hoynes, “The Earned Income Tax Credit and the Labor Supply of Married
Couples,” National Bureau of Economic Research, Working Paper 6856, 1998. V. Joseph Hotz and John Karl Sholz,
“In-Work Benefits in the United States: The Earned Income Credit,” The Economic Journal, vol. 106, no. 434 (January
1996), pp. 156-169.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗśȱ

‘ŽȱŠ›—Žȱ —Œ˜–ŽȱŠ¡ȱ›Ž’ȱǻ ǼDZȱ—ȱŸŽ›Ÿ’Ž ȱ
ȱ
of $246, and payroll taxes of $835, the adult has an after tax income of $10,177. This is 98.9% of
the poverty threshold (for one adult) of $10,294.
˜–™•’Š—ŒŽȱ
Compliance with the EITC provisions has been an issue for the program since 1990, when the
Internal Revenue Service (IRS), as part of the Taxpayer Compliance Measurement Program
(TCMP), released a study on 1985 tax year returns with the EITC. The study concluded that there
was an over-claim rate of 39.1%. This over-claim rate however, did not reflect any later efforts by
the IRS to collect on the over payments. Later studies by the IRS have resulted in lower over-
claim rates. The 1997 and 1999 tax return studies10 estimated that the unrecovered over-claim
rates were 23.8% to 25.6%, and 27.0% to 31.7%. These studies presented the rates as upper and
lower bound-estimates because a number of individuals contacted as part of the study did not
respond. The lower bound assumes that the over-claim rate for the nonrespondents is the same as
for respondents, while the upper bound assumes that all the nonrespondents are over-claims.
In the 1999 study, 24.9% of over-claims (with errors known) were due to the child claimed not
being the tax filers’s qualified child. The most common qualifying child error was that the child
did not meet the residency test, six months or one year depending on relationship. The second
most common was the child not meeting the relationship test, particularly in the case of foster
children where the child did not live with the tax filers for the full year or was not cared for as the
tax filers’s own child.
After errors in claiming an unqualified child, errors in income reporting accounted for 21.4% of
the over-claims. Most frequent income reporting errors were underreporting of earned income and
modified adjusted gross income. Another 17.2% of known errors were for a qualifying child also
being the qualifying child of another tax filer.
As a result of the over-claim rates, there have been several legislative changes to improve EITC
compliance. Among them are: the requirement that dependents have identification numbers
(social security numbers); prohibitions of 2 to 10 years on receiving the EITC after improperly or
fraudulently receiving the credit; for tax preparers due diligence requirements (maintaining
certain paperwork); and permission for the IRS to match tax filers to the Federal Case Registry of
Child Support Orders. (Maintained by the Department of Health and Human Services.)
In addition, some of the EGTRRA changes to the EITC definition of a qualifying child and the
tie-breaker rules (rules for when more than one person can claim a child), may help in the future
to reduce these problems. However, the general rate of over-claims has not changed significantly
since 1990.
To reduce the complexity created by the different definitions of a child, proposals were made by
both the U.S. Department of the Treasury and the Joint Committee on Taxation to conform the
definition of a child for purposes of the personal exemption, child credit, EITC, dependent care,
and head of household filing status. The Working Families Tax Relief Act of 2004 (P.L. 108-311)

10 Internal Revenue Service, Department of the Treasury, “Compliance Estimates for Earned income Tax Credit
Claimed on 1999 Returns,” February 28, 2002, p. 18.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗŜȱ

‘ŽȱŠ›—Žȱ —Œ˜–ŽȱŠ¡ȱ›Ž’ȱǻ ǼDZȱ—ȱŸŽ›Ÿ’Ž ȱ
ȱ
created a more uniform definition of a child for tax purposes, including the EITC. This new
definition became effective with tax year 2005.11
In 2003, the IRS announced plans to conduct a pre-certification effort for the tax year 2003
returns, in which tax filers expecting to claim the EITC would need to pre-certify that any child
claimed for the EITC met the residency requirement (had resided with the tax filer for at least half
of the tax year). The pre-certification effort was converted to a study of approximately 25,000
returns expected to claim the EITC, and combined with two other compliance studies related to
the EITC: (1) a study of filing status; and (2) an automated underreporter (income) study. The
Consolidated Appropriations Act of 2004 (P.L. 108-199) required a report to Congress on the
qualified child study (the pre-certification of a child for the EITC residency requirement).
According to the IRS,12 the three studies uncovered and prevented payment of more than $275
million in erroneous claims for the EITC, with approximately $250 of the $275 million from the
automated underreporter study. In the automated underreporter study, the IRS manually reviewed
300,000 tax returns that claimed the EITC in tax year 2003, that also had indications of income
misreporting for tax year 2002. Approximately 83% of the tax returns had a reduction or
disallowance of the EITC as a result of the manual review.
Š’˜—Š•ȱŠ¡™Š¢Ž›ȱŸ˜ŒŠŽȂœȱȃ˜œȱŽ›’˜žœȱ›˜‹•Ž–œȄȱ
Each year the National Taxpayer Advocate13 must report to Congress and analyze at least 20
serious problems taxpayers have with the tax system. The reports for 2002 through 2005 included
EITC related problems among those listed as the “most serious problems” encountered by tax
filers. In the report for 2005, included among the problems for the EITC are the documentation
requirements, the length of time taken to complete examinations (particularly exams conducted
through correspondence with the taxpayer), the taxpayer response rate for examinations, and
delays in the re-certification process. It is important to note that while including the time to
complete the examination process (an average of 181 days in FY2005), the Taxpayer Advocate
noted that the time had declined each year since FY2002 (when the average time for completion
of an EITC examination was 220 days).
The Taxpayer Advocate Service (TAS) also did a study of TAS cases with refunds frozen by
Criminal Investigation (by the Questionable Refund Program), which is an IRS program designed
to stop fraud. The Taxpayer Advocates notes that of the 473 returns selected for the study, 75%
claimed the EITC and that 80% of the returns selected for the study eventually received at least a
partial refund. The Taxpayer Advocate has made several recommendations for the CI program
related to the freezing of refunds including (1) that the IRS conduct a study of returns with
refunds frozen by CI that were not TAS cases; (2) notify taxpayers soon after their refunds are
frozen that their refunds are frozen and will not be released until a determination is made
(currently taxpayers are not notified); and (3) shorten the time period (currently six months)

11 For information on the new definition of a child, see CRS Report RS22016, Tax Benefits for Families: Changes in
the Definition of a Child
, by Christine Scott.
12 The final report of the EITC initiative can be found on the IRS website at http://www.irs.gov/pub/irs-utl/
irs_earned_income_tax_credit_initiative_final_report_to_congress_october_2005.pdf.
13 The National Taxpayer Advocate heads an independent program with the Internal Revenue Service (IRS) known as
the National Taxpayer Service. The program is designed to handle taxpayer complaints not resolved through normal
IRS procedures and to analyze problems encountered by taxpayers with the IRS and suggest solutions for the problems.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗŝȱ

‘ŽȱŠ›—Žȱ —Œ˜–ŽȱŠ¡ȱ›Ž’ȱǻ ǼDZȱ—ȱŸŽ›Ÿ’Ž ȱ
ȱ
during which other IRS organizations (such as TAS) cannot help taxpayers with respect to frozen
refunds.
On January 24, 2006, IRS Commissioner Mark Everson announced that he had directed a review
of the program, and that in the near future the IRS will announce plans “to institute notification
procedures as well as significant improvements to minimize the number of taxpayers whose
refunds are frozen unnecessarily.”14
In addition to the problems listed by the National Taxpayer Advocate, the Treasury Inspector
General for Tax Administration, released a report,15 finding that taxpayers were not treated
consistently by the service centers regarding the two-year ban, and that the ban notice and other
material related to the ban and re-certification needed more clarification for taxpayers.

14 Internal Revenue Service, news release, available at http://www.irs.gov/newroom/article/0,,id=15813,00.html.
15 Treasury Inspector General for Tax Administration, Application of the Earned Income Credit Two-Year Ban Could
Be More Consistent, Accurate, and Clear to Taxpayers
, 2004-40-015, December 2004.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗŞȱ

‘ŽȱŠ›—Žȱ —Œ˜–ŽȱŠ¡ȱ›Ž’ȱǻ ǼDZȱ—ȱŸŽ›Ÿ’Ž ȱ
ȱ
™™Ž—’¡ȱǯ Ž’œ•Š’ŸŽȱ ’œ˜›¢ȱ˜ȱ‘Žȱ ŗŜȱ
The idea that became the EITC first arose during congressional consideration of President
Nixon’s 1971 welfare reform proposal. Nixon’s proposal, the Family Assistance Plan, would have
helped working poor, two-parent families with children by means of a federal minimum cash
guarantee that would have replaced the federal-state welfare program of Aid to Families with
Dependent Children (AFDC).
˜›”ȱ˜—žœȱ•Š—ȱǻŗşŝŘȬŗşŝŚȱ›˜™˜œŠ•œǼȱ
The EITC was patterned after a proposal, then known as a work bonus for the working poor,
recommended by the Senate Finance Committee in April 1972. Though the idea originated as an
alternative to the proposed Family Assistance Program, the work bonus provision was advocated
as a “refund” of Social Security taxes paid by employers and employees on low annual earnings
and was to have been available only for wages subject to Social Security taxation.
The Senate approved the work bonus plan in 1972, 1973, and 1974, but the House did not accept
it until 1975.
—ŠŒ–Ž—ȱ˜ȱ ȱ’—ȱŗşŝśȱ
The Tax Reduction Act of 1975 (P.L. 94-12) included a provision that established, in Section 32
of the Internal Revenue Code, a refundable credit to tax filers with incomes below $8,000. This
“earned income credit” was to equal 10% of the first $4,000 of any earnings (including earnings
not subject to Social Security taxation) and thus could not exceed $400 per year. The credit was to
be phased out, at a rate of 10%, for adjusted gross income (AGI) above $8,000.
¡Ž—œ’˜—œȱ˜ȱ ȱǻŗşŝśȬŗşŝŝȱŠ œǼȱ
The Revenue Adjustment Act of 1975 (P.L. 94-164), Tax Reform Act of 1976 (P.L. 94-455), and
Tax Reduction and Simplification Act of 1977 (P.L. 95-30) each extended the EITC by one year.
Ž›–Š—Ž—ȱŠžœȱ˜›ȱ ȱŠ—ȱ’œŽȱ’—ȱŠ¡’–ž–ȱ›Ž’ȱǻŗşŝŞȱ
Š Ǽȱ
The Revenue Act of 1978 (P.L. 95-600) made the EITC permanent and increased the maximum
credit to $500 and the eligibility limit to $10,000, provided for EITC payments in advance of the
annual tax filing, and simplified eligibility determinations.
Under the 1978 law, the EITC was set at 10% of the first $5,000 of earnings (including net
earnings from self-employment). The maximum credit of $500 was received for earnings between

16 This legislative history of the EITC is a shortened version of the more detailed history in CRS Report 95-542, The
Earned Income Tax Credit: A Growing Form of Aid to Low-Income Workers
, by James R. Storey.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗşȱ

‘ŽȱŠ›—Žȱ —Œ˜–ŽȱŠ¡ȱ›Ž’ȱǻ ǼDZȱ—ȱŸŽ›Ÿ’Ž ȱ
ȱ
$5,000 and $6,000. For each dollar of AGI above $6,000, the EITC was reduced by 12.5 cents,
reaching $0 at an AGI of $10,000.
’œŽȱ’—ȱŠ¡’–ž–ȱ›Ž’ȱǻŗşŞŚȱŠ Ǽȱ
The Deficit Reduction Act of 1984 (P.L. 98-369) raised the maximum credit by 10%, from $500
to $550 by establishing the EITC at 11% of the first $5,000 of earnings. Earnings between $5,000
and $6,500 qualified for the maximum credit of $550. For each dollar of AGI above $6,500, the
law required that the EITC be reduced by 12.22 cents. As a result, the credit was completely
phased out when AGI reached $11,000.
—Ž¡Š’˜—ȱ˜ȱ ȱŠ—ȱ’œŽȱ’—ȱŠ¡’–ž–ȱ›Ž’ȱǻŗşŞŜȱŠ Ǽȱ
Effective with tax year 1987, the Tax Reform Act of 1986 (P.L. 99-514) increased the EITC from
11% of the first $5,000 of earnings to 14% of the first $5,714 of earnings. The act also began
indexing the credit for inflation. This was done by indexing the maximum earned income eligible
for the credit and phase-out income level by using the change in the average Consumer Price
Index (CPI) for the 12-month period ending August 31 of each year, from the CPI for the 12-
month period ending August 31, 1984. In addition, the starting point of the phase-out income
level was increased for 1987 and 1988. The 1986 Act also lowered the phase-out rate from
12.22% to 10% beginning with the 1987 tax year.
The increase in the maximum earned income for the credit and the credit rate raised the EITC,
while the reduction in the phase-out rate reduced the marginal tax rate on recipient earnings. The
combination of a higher EITC and a lower phase-out rate increased the income eligibility level
from $11,000 in 1984 to $14,500 (in 1984 dollars) for 1987. During debate on the Tax Reform
Act of 1986, it was said that “the liberalization of the earned income credit will help to assure that
low-income citizens are no longer taxed into poverty.”17
’œŽȱ’—ȱŠ¡’–ž–ȱ›Ž’ȱŠ—ȱœŠ‹•’œ‘–Ž—ȱ˜ȱŠ–’•¢Ȭ’£Žȱ
“žœ–Ž—ȱŠ—ȱž™™•Ž–Ž—Š•ȱ›Ž’œȱǻŗşşŖȱŠ Ǽȱ
Šœ’Œȱ ȱ
Because the EITC was originally established as a work bonus and advertised as an offset to the
Social Security tax, it had not been designed to vary by family size. Thus, the larger the family,
the less it met the family’s needs. Proposals were introduced in the 101st Congress to vary EITC
credit amounts by number of children, up to a maximum of two, three, or four children depending
on the bill. These proposals intended to increase EITC’s welfare role while continuing its
provision of payroll tax relief and work bonuses. However, no one proposed that EITC family-
size variations be modeled after AFDC, which varied for much larger family sizes.
The EITC expansion enacted in the Omnibus Budget Reconciliation Act (OBRA) of 1990 (P.L.
101-508) took effect in 1991 and was to be completed in 1994. An adjustment for family size was

17 In floor statement of Senator Matsunaga, Congressional Record, daily edition, September 26, 1986, p. S13818.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŘŖȱ

‘ŽȱŠ›—Žȱ —Œ˜–ŽȱŠ¡ȱ›Ž’ȱǻ ǼDZȱ—ȱŸŽ›Ÿ’Ž ȱ
ȱ
introduced and the credit and phase-out rates for each of the family sizes (one child , two or more
children) were increased each year. However, the planned rate increases for 1994 were
superseded by a 1993 law. (See below.)
ž™™•Ž–Ž—Š•ȱ˜ž—ȱ‘’•ȱ›Ž’ȱ
Numerous proposals were introduced in the 101st Congress to establish refundable tax credits for
families with young children. These proposals would have set credit amounts based on earned
income and number of qualifying children. Both House and Senate passed such provisions in
competing versions of child care legislation. These measures were seen as aiding lower income
families in need of child care for preschool children.
Final action in OBRA of 1990 limited additional credits for young children to those under one
year of age. Eligible families with such children had an extra 5.0 percentage points added to their
credit rate in computing the EITC amount. This extra credit had a maximum amount in 1993 of
$388, and was phased out by adding 3.57 percentage points to the family’s phase-out rate. Thus,
in 1993 families with one or more children under age 1 had a combined credit rate of 23.5% or
24.5%, depending on total number of children, and a combined phase-out rate of 16.78% or
17.50%.
This extra credit was ended effective for tax year 1994 by OBRA of 1993 (P.L. 103-66).
ž™™•Ž–Ž—Š•ȱ ŽŠ•‘ȱ —œž›Š—ŒŽȱ›Ž’ȱ
A new refundable credit aimed at helping parents finance health insurance for their children was
included in the Senate-passed OBRA of 1990. The House did not include such a provision, but it
was accepted by House-Senate conferees. The supplemental health insurance credit applied to
earnings up to the maximum amount to which the EITC applied and was then reduced over the
same income range used for the EITC phase-out. The rates set for the child health insurance credit
and its phase-out were 6.0% and 4.285%, respectively. These percentages were added to those
that applied to a family for the basic EITC and, if eligible, the young child credit. The maximum
amount of the supplemental health insurance credit in 1993 was $465. The credit could not
exceed the health insurance premiums actually paid by a family during the tax year. Unlike the
basic EITC, this supplemental credit could not be received in advance of the annual tax filing.
The health insurance credit was ended, effective in 1994, by OBRA of 1993.
¡™Š—œ’˜—ȱ˜ȱ›Ž’œǰȱ˜ŸŽ›ŠŽȱ˜ȱ‘’••Žœœȱž•œǰȱŠ—ȱŽ™ŽŠ•ȱ˜ȱ
ž™™•Ž–Ž—Š•ȱ›Ž’œȱǻŗşşřȱŠ Ǽȱ
President Clinton began his term in office in 1993 with a pledge to use the EITC to eliminate
poverty for families with a member working full-time at the minimum wage in order to “make
work pay.” Fulfillment of his pledge required a proposal to raise the EITC credit rates, especially
for families with two or more children. His proposal was enacted as part of OBRA of 1993 (P.L.
103-66) with little change by Congress. President Clinton also proposed extending the EITC for
the first time to low-income working adults with no children to offset tax increases in OBRA of
1993, and Congress adopted this proposal with only minor changes. To offset part of the EITC
expansion’s cost, and to meet the criticism of the EITC’s growing complexity, Congress also
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
Řŗȱ

‘ŽȱŠ›—Žȱ —Œ˜–ŽȱŠ¡ȱ›Ž’ȱǻ ǼDZȱ—ȱŸŽ›Ÿ’Ž ȱ
ȱ
passed the President’s proposal to repeal the supplemental credits for young children and for child
health insurance premiums as part of OBRA of 1993.
›Ž’ȱ˜›ȱŠ–’•’Žœȱ
The EITC parameters for families were significantly changed by OBRA 1993. The credit rates
were increased from 23% to 34% in 1996 for a family with one child, and from 25% to 40% for a
family with two or more children. The phase-out rate for families with one child was slightly
lowered (from 16.43% to 15.98%) and the phase-out rate for families with two or more children
was increased from 17.86% to 21.06%.
¡Ž—œ’˜—ȱ˜ȱ ȱ˜ȱ‘’••Žœœȱ ˜žœŽ‘˜•œȱ
The Clinton Administration proposal enacted in OBRA of 1993 extended the EITC for the first
time to workers who have no children. The main rationale for this credit was to offset partly the
effect on low-income workers of a gasoline tax increase included in OBRA of 1993. The 1993
law provided, effective in 1994, a credit of 7.65% of the first $4,000 of annual earnings, for a
$306 maximum credit. It is phased out at a 7.65% rate, beginning at an income level of $5,000
and ending at $9,000. The maximum earned income and the phase-out income level are adjusted
annually for inflation.
This credit applies to adults ages 25 to 64 who are not claimed as dependents on anyone’s tax
return. The age limits were imposed by Congress to exclude two groups (students under age 25,
retirees over age 64) whose incentive to work was not regarded as an important priority.
˜ŸŽ›ŠŽȱ˜ȱŸŽ›œŽŠœȱ’•’Š›¢ȱŽ›œ˜——Ž•ȱǻŗşşŚȱŠ Ǽȱ
Before 1995, the EITC had always been restricted to families residing in the United States. This
rule excluded from EITC otherwise eligible lower income American military families living in
foreign countries. A provision in the 1994 legislation to implement the General Agreement on
Tariffs and Trade (P.L. 103-465) provides EITC eligibility for qualifying families outside the
United States if their foreign residence is because of a U.S. military assignment. This provision
became effective in 1995.
This law also included measures to (1) deny the EITC for wages earned by prison inmates; and
(2) deny eligibility to anyone who spent part of the tax year as a nonresident alien.
•’’‹’•’¢ȱ’–’ȱŠœŽȱ˜—ȱ —ŸŽœ–Ž—ȱ —Œ˜–ŽȱǻŗşşśȱŠ Ǽȱ
Limitation of EITC eligibility by a filing unit’s income has always been based on the greater of
AGI or earnings. However, following up on a proposal in President Clinton’s FY1996 budget,
Congress enacted in 1995 (P.L. 104-7) a new limitation tied to investment income. This provision
prohibits EITC claims by tax filers whose annual investment income exceeds $2,350. Investment
income is defined to include taxable interest and dividend income, tax-exempt interest income,
and net income from rent and royalties not derived in the normal course of the filer’s business.
This provision took effect in 1996. (It was modified in August 1996 action. See discussion
below.)
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŘŘȱ

‘ŽȱŠ›—Žȱ —Œ˜–ŽȱŠ¡ȱ›Ž’ȱǻ ǼDZȱ—ȱŸŽ›Ÿ’Ž ȱ
ȱ
ŽŸ’œ’˜—œȱ˜ȱ ȱ’—ȱ‘ŽȱŽ•Š›ŽȱŽ˜›–ȱ’••ȱǻŗşşŜȱŠ Ǽȱ
Although not proposing specific legislation, the FY1997 congressional budget resolution
(H.Con.Res. 178) “assumes reforms of the Earned Income Credit ... to eliminate fraud and abuse
within the program, to better target to low-income working families with children, and to
coordinate the credit with the $500 per child tax credit that also is assumed in this budget.” In
followup, Congress included EITC savings in the welfare reform measure (H.R. 3734) signed by
President Clinton on August 22, 1996 (P.L. 104-193). These provisions are described below.
Ž—¢ȱ ȱ˜ȱ—˜Œž–Ž—Žȱ˜›”Ž›œȱ
This provision requires tax filers to have valid taxpayer identification numbers (usually Social
Security numbers) to be eligible for the EITC. Social Security numbers are issued only to persons
who can document their age, identity, and U.S. citizenship or legal alien status. It becomes
effective for tax returns due more than 30 days after the enactment date. This measure helps the
Internal Revenue Service (IRS) gain compliance from tax filers lacking valid numbers before
accepting their EITC claims.
’œšžŠ•’’Žȱ —Œ˜–Žȱ
Congress acted in March 1995 (see earlier discussion) to exclude from EITC eligibility all filers
with “disqualified income,” defined as income in excess of $2,350 a year from interest (taxable
and tax-exempt), dividends, and net rents and royalties. The welfare reform bill broadened this
definition to include net capital gains and net passive income. The maximum allowance for
disqualifying income was reduced from $2,350 to $2,200 for 1996 and indexed for inflation in
later years.
›˜ŠŽ—ȱ —Œ˜–ŽȱœŽȱ’—ȱ ȱ‘ŠœŽȬ˜žȱ
The EITC is phased out when the greater of earnings or AGI exceeds a certain level ($11,610 in
1996 for families with children). Broadening the definition of income used for EITC phase-out
reduces the EITC for persons with income from the sources to be included. Effective for 1996,
the welfare reform bill expanded the income used to phase out the EITC by netting out certain
losses that are normally taken into account in calculating AGI. These losses are net capital losses,
net losses from estates and trusts, net losses from nonbusiness rents and royalties, and half of net
business losses.
••˜ ȱŠŽȱŽ•Š›Žȱ›˜›Š–œȱ˜ȱ˜ž—ȱ ȱ
The 1996 welfare reform bill (Personal Responsibility and Work Opportunity Reconciliation Act,
P.L. 104-193) repealed AFDC. And in its place created the Temporary Assistance to Needy
Families (TANF) program, a state-run system funded partly by federal block grants. This
conversion to state control alters the EITC-welfare relationship. Federal law had required that the
EITC be disregarded as income in determining eligibility for AFDC, Food Stamps, Medicaid,
Supplemental Security Income (SSI), and housing aid. Lump-sum EITC payments had to be
ignored in comparing applicants’ assets to program asset limits for the month of receipt and the
next month. (The Food Stamp program must ignore lump-sum EITC payments for one year.)
Ending AFDC eliminates federal restrictions on states’ treatment of the EITC for cash welfare
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
Řřȱ

‘ŽȱŠ›—Žȱ —Œ˜–ŽȱŠ¡ȱ›Ž’ȱǻ ǼDZȱ—ȱŸŽ›Ÿ’Ž ȱ
ȱ
(TANF) recipients. States may count the EITC as income available to families aided by TANF
programs and reduce their welfare accordingly. Lump-sum EITC receipt may be counted by states
as assets immediately available to state-aided families, thereby denying them that aid if counting
the EITC causes their assets to exceed state asset limits. States adopting such policies may spend
less on aid to needy families from their federal grants, in effect substituting the federal EITC for
state welfare and lowering the income of those affected.
Ž—¢’—ȱ›Ž’ȱŠœŽȱ˜—ȱ›’˜›ȱ•Š’–œȱǻŗşşŝȱŠ œǼȱ
To improve compliance related to the EITC, the Taxpayer Relief Act of 1997 (P.L. 105-34),
denied the EITC to tax filers for a specified period of time if the tax filers had previously made a
fraudulent or reckless EITC claim. A tax filer is denied the EITC for two years after it has been
determined that the tax filer made a reckless claim, and ten years after a determination that a tax
filer has made a fraudulent claim. The Balanced Budget Act of 1997 (P.L. 105-33) provided initial
funding for a five-year initiative by the IRS to improve compliance for the EITC.
ŽžŒ’˜—ȱ˜ȱŠ››’ŠŽȱŽ—Š•¢ȱŠ—ȱ’–™•’’ŒŠ’˜—ȱ˜ȱ‘Žȱ ȱ
ǻŘŖŖŗȱŠ Ǽȱ
The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA, P.L. 107-16), to
reduce the marriage penalty, increased the phase-out income levels for married couples filing a
joint return by $1,000 for tax years 2002 through 2004, $2,000 for tax years 2005 through 2007,
and $3,000 beginning in tax year 2008 (indexed for inflation). The bill also simplified the
definition of earned income to reflect only compensation included in gross income; based the
phase-out of the credit on adjusted gross income instead of expanded (or modified) gross income;
and eliminated the reduction in the EITC for the alternative minimum tax.
—’˜›–ȱŽ’—’’˜—ȱ˜ȱŠȱ‘’•ȱŠ—ȱ˜–‹ŠȱŠ¢ȱǻŘŖŖŚȱŠ Ǽȱ
The Working Families Tax Relief Act of 2004 (P.L. 108-311) created a more uniform definition of
a child for tax purposes. The EITC, along with other tax provisions used by families (child tax
credit, head of household filing status, and dependent care tax provisions) are linked to this more
uniform definition of a child under the personal exemption tax provision. The definition of a child
and the rules for when more than one party may claim a child for these tax provisions are the
same as the rules for the EITC in tax year 2004. In effect, the changes in the tax code for a more
uniform definition of a child will not impact eligibility for the EITC. In addition, P.L. 108-311
allowed members of the armed forces to include combat pay for purposes of computing the
earned income credit for tax years that ended after October 4, 2004 and before January 1, 2006
(generally tax years 2004 and 2005).
ž››’ŒŠ—ŽȱŽ•’ŽȱǻŘŖŖśȱŠ Ǽȱ
The Katrina Emergency Relief Act (P.L. 109-73) provided that taxpayers affected by Hurricane
Katrina may use their tax year 2004 earned income to compute their 2005 EITC.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŘŚȱ

‘ŽȱŠ›—Žȱ —Œ˜–ŽȱŠ¡ȱ›Ž’ȱǻ ǼDZȱ—ȱŸŽ›Ÿ’Ž ȱ
ȱ
¡Ž—œ’˜—ȱ˜ȱ˜–‹ŠȱŠ¢ȱǭȱ ž››’ŒŠ—ŽȱŽ•’ŽȱǻŘŖŖśȱŠ Ǽȱ
The Gulf Opportunity Zone Act of 2005 (P.L. 109-135) extended the option to include combat
pay for calculating the credit for another year (tax year 2006, or tax years ending before January
1, 2007).
P.L. 109-135 also extended the option of using 2004 income to compute 2005 EITC to taxpayers
affected by Hurricane Rita, and clarified that to use this election, the taxpayer’s 2005 income had
to be less than the taxpayer’s 2004 income.
Extension of Combat Pay (2006 Law)
The Tax Relief and Health Care Act of 2006 (P.L. 109-432) extended the option to include
combat pay for calculating the credit through tax year 2007.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
Řśȱ

‘ŽȱŠ›—Žȱ —Œ˜–ŽȱŠ¡ȱ›Ž’ȱǻ ǼDZȱ—ȱŸŽ›Ÿ’Ž ȱ
ȱ
™™Ž—’¡ȱǯ ’œ˜›¢ȱ˜ȱ‘Žȱ ȱŠ›Š–ŽŽ›œȱ
Since its inception in 1975, the EITC has evolved from a small program to refund a portion of
social security taxes to the largest anti-poverty entitlement program. The credit has been modified
through changes in eligibility and in the values of the parameters used to calculate the credit.
Table B-1 shows the changes to the parameters for the EITC for tax years 1975 through 2008.
Table B-1. EITC Parameters, 1975-2008

Credit
Maximum
Maximum Phase-Out Phase-Out
Income
Rate (%)
Earned Income
Credit
Income
Where
a
Rate (%)
Level
EITC=$0
For families with children:
1975 10.0
4,000 400 10.0 4,000
8,000
1976 10.0
4,000 400 10.0 4,000
8,000
1977 10.0
4,000 400 10.0 4,000
8,000
1978 10.0
4,000 400 10.0 4,000
8,000
1979 10.0
5,000 500 12.5 6,000
10,000
1980 10.0
5,000 500 12.5 6,000
10,000
1981 10.0
5,000 500 12.5 6,000
10,000
1982 10.0
5,000 500 12.5 6,000
10,000
1983 10.0
5,000 500 12.5 6,000
10,000
1984 10.0
5,000 500 12.5 6,000
10,000
1985 10.0
5,000 500 12.22 6,500
11,000
1986 10.0
5,000 500 12.22 6,500
11,000
1987 14.0
6,080 851 10.0 6,920
15,432
1988 14.0
6,240 874 10.0 9,840
18,576
1989 14.0
6,500 910 10.0 10,240
19,340
1990 14.0
6,810 953 10.0 10,730
20,264
For families with one child:
1991 16.7
7,140 1,192 11.93
11,250a
21,250a
1992 17.6
7,520 1,324 12.57
11,840a 22,370a
1993 18.5
7,750 1,434 13.21
12,200a 23,050a
1994 26.3
7,750 2,038 15.98 11,000
23,750
1995 34.0
6,150 2,094 15.98 11,290
24,396
1996 34.0
6,350 2,152 15.98 11,650
25,100
1997 34.0
6,500 2,210 15.98 11,950
25,800
1998 34.0
6,650 2,271 15.98 12,300
26,500
1999 34.0
6,800 2,312 15.98 12,500
26,950
2000 34.0
6,900 2,353 15.98 12,700
27,450
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŘŜȱ

‘ŽȱŠ›—Žȱ —Œ˜–ŽȱŠ¡ȱ›Ž’ȱǻ ǼDZȱ—ȱŸŽ›Ÿ’Ž ȱ
ȱ

Credit
Maximum
Maximum Phase-Out Phase-Out
Income
Rate (%)
Earned Income
Credit
Income
Where
a
Rate (%)
Level
EITC=$0
2001 34.0
7,100 2,428 15.98 13,100
28,300
2002 34.0
7,350 2,506 15.98
13,550b 29,250b
2003 34.0
7,490 2,547 15.98
13,730b 29,666b
2004 34.0
7,660 2,604 15.98
14,040b 30,338b
2005 34.0
7,830 2,662 15.98
14,370c 31,030c
2006 34.0
8,080 2,747 15.98
14,810c 32,001c
2007 34.0
8,390 2,853 15.98
15,390c 33,241c
2008 34.0
8,580 2,917 15.98
15,740d 33,995d
For families with two or more children:
1991 17.3
7,140 1,235 12.36
11,250a 23,122a
1992
18.4 7,520
1,384
13.14
11,840a 22,370a
1993 19.5
7,750 1,511 13.93
12,200a 23,050a
1994 30.0
8,425 2,528 17.86 11,000
25,300
1995 36.0
8,600 3,110 20.22 11,290
26,673
1996 40.0
8,890 3,556 21.06 11,650
28,495
1997 40.0
9,100 3,656 21.06 11,950
29,290
1998 40.0
9,350 3,756 21.06 12,300
30,095
1999 40.0
9,500 3,816 21.06 12,500
30,580
2000 40.0
9,700 3,888 21.06 12,700
31,152
2001 40.0
10,000 4,008 21.06 13,100
32,121
2002 40.0
10,350 4,140 21.06
13,550b 33,150b
2003 40.0
10,510 4,204 21.06
13,730b 33,666b
2004 40.0
10,750 4,300 21.06
14,040b 34,458b
2005 40.0
11,000 4,400 21.06
14,370c 35,263c
2006 40.0
11,340 4,536 21.06
14,810c 36,348c
2007 40.0
11,790 4,716 21.06
15,390c 37,783c
2008 40.0
12,060 4,824 21.06
15,740d 38,646d
For childless adults:
1994 7.65
4,000
306 7.65 5,000
9,000
1995 7.65
4,100 314 7.65 5,130
9,230
1996 7.65
4,200 323 7.65 5,300
9,500
1997 7.65
4,300 332 7.65 5,450
9,750
1998 7.65
4,450 341 7.65 5,600
10,050
1999 7.65
4,500 347 7.65 5,700
10,200
2000 7.65
4,600 353 7.65 5,800
10,400
2001 7.65
4,750 364 7.65 5,950b 10,750b
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
Řŝȱ

‘ŽȱŠ›—Žȱ —Œ˜–ŽȱŠ¡ȱ›Ž’ȱǻ ǼDZȱ—ȱŸŽ›Ÿ’Ž ȱ
ȱ

Credit
Maximum
Maximum Phase-Out Phase-Out
Income
Rate (%)
Earned Income
Credit
Income
Where
a
Rate (%)
Level
EITC=$0
2002 7.65
4,900 376 7.65 6,100b 11,100b
2003 7.65
4,990 382 7.65 6,240b 11,230b
2004 7.65
5,100 390 7.65 6,390b 11,490b
2005 7.65
5,220 399 7.65 6,530c 11,750c
2006 7.65
5,380 412 7.65 6,740c 12,120c
2007 7.65
5,590 428 7.65 7,000c 12,590c
2008 7.65
5,720 438 7.65 7,160d 12,880d
Source: Table prepared by the Congressional Research Service.
a. The credit maximums for 1991-1993 do not include the two supplemental credits that were available to
some EITC recipients in those years. The young child supplement added 5 percentage points to a family’s
credit rate; the child health insurance supplement added up to 6 points.
b. For this tax year the phase-out income level for a married couple filing a joint tax return is $1,000 higher
than shown in the table.
c. For this tax year the phase-out income level for a married couple filing a joint tax return is $2,000 higher
than shown in the table.
d. For this tax year, the phase-out income level for a married couple filing a joint tax return is $3,000 higher
than shown in the table.

ž‘˜›ȱ˜—ŠŒȱ —˜›–Š’˜—ȱ

Christine Scott

Specialist in Social Policy
cscott@crs.loc.gov, 7-7366




˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
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