The Expanded Childless EITC and Marriage Penalties

The Expanded Childless EITC and Marriage Penalties

INSIGHTi

The Expanded Childless EITC and Marriage
Penalties
January 24, 2022
The American Rescue Plan Act of 2021 (ARPA; P.L. 117-2) temporarily expanded the Earned Income Tax
Credit (EITC) for workers with no qualifying children for 2021. (Qualifying children for the EITC are
generally children related to the taxpayer who live with them for more than half the year, in addition to
meeting other requirements.) The Build Back Better Act (BBBA; H.R. 5376)—both the House-passed
version and the text from the Senate Finance Committee, released December 11—proposes extending this
temporary expansion for one additional year, 2022.
The EITC for workers without qualifying children is generally referred to as the childless EITC. The term
“childless,” however, may be misleading. Workers without qualifying children may have noncustodial
children, live with children for less than six months of a year, or live with nonbiological children they
cannot claim for the credit.
Research has found that EITC receipt reduces poverty among low-income workers with children, and
may also encourage some parents to enter the workforce. Proponents argue an expanded childless EITC
would similarly reduce poverty and potentially encourage work among those without qualifying children.
Up until 2021, the childless EITC provided much smaller benefits to low-wage workers without
qualifying children. ARPA expanded both eligibility for and the amount of the credit for many childless
workers, providing a boost in income to an estimated 17 million workers.
However, one concern raised by policymakers regarding the childless EITC expansion under ARPA (and
proposed extension under BBBA) is that it could also increase EITC-related marriage penalties. EITC
marriage penalties occur when a married couple receives a smaller credit than the combined total of
credits if the couple were unmarried, as illustrated below.
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Marriage penalties (and bonuses) are not unique to the EITC; they can occur in many other need-tested
benefits programs in which marriage changes household composition under the program’s rules, resulting
in different benefit amounts.
What causes EITC marriage penalties (and bonuses)?
Historically, the EITC has been a feature of the tax code that could result in marriage penalties for low-
income families. The EITC’s marriage penalty has existed since the credit was enacted in the 1970s—
when the credit was only available to workers with children and was targeted to single parents. The
penalty arises due to the structure of the credit, including the phaseout or reduction of the credit when
income rises, and the variation in the size of the credit by number of children. The structure of the EITC is
illustrated below.

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When an unmarried worker marries another person, their combined household income is generally used to
calculate the credit (and more broadly, used to calculate their federal income tax liability). If their
combined income places them in the credit’s phase-in region, marriage will either be neutral (if neither
adult has credit-qualifying children) or result in a bonus (depending on the total number of children). If
their household income places the family at or above the EITC phaseout, a marriage penalty will tend to
occur. Marriage penalties can also occur when a household’s combined income is in the credit’s plateau.
Whether a particular couple will be subject to a marriage penalty (or bonus) depends on both combined
household income and the income of each spouse, although penalties are more common among couples
where income is evenly split.
In addition, when adults marry, the number of children is combined at the household level, which may
lead to marriage penalties (or bonuses). As the number of children increases, the maximum credit amount
does not increase by the same fixed amount per child. For example, if a taxpayer with one child married
another taxpayer with one child, the maximum credit they could receive in 2021—$5,980—is less than
the combined credit of two unmarried taxpayers, each with one child, of $7,236 (2 x $3,618). In contrast,
if a single parent with little to no earnings married an unmarried childless adult with modest earnings, the
couple would tend to receive a marriage bonus from the credit.
How did the ARPA expansion of the childless EITC change marriage
penalties (and bonuses)?
ARPA temporarily expanded the childless EITC, doubling or tripling the credit amount for many eligible
taxpayers, depending on their income, as illustrated below. Before this expansion, and since being enacted
in 1993, the childless EITC had been small relative to the EITC for those with qualifying children, and
thus did not significantly contribute to EITC marriage penalties.

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A larger childless EITC means a potentially larger credit reduction from marriage for some couples—
reducing bonuses and increasing penalties associated with marriage, as illustrated below, in cases where
income is split evenly among spouses.

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What is the impact of EITC marriage penalties (and bonuses) on
marriage?
The EITC, and the broader tax system, provides a financial incentive for marriage to some couples and a
disincentive to others, but this is just one of many factors that may influence marital decisions. Analyzing
whether the EITC affects marital behavior is challenging, as there is some uncertainty associated with
existing empirical evidence. Research has produced some inconsistent findings, but studies typically
suggest that the EITC has a modest negative effect or no effect overall on marriage.
How could EITC marriage penalties be reduced or eliminated?
A number of policy changes have been proposed that could reduce or eliminate EITC marriage penalties
(and even increase marriage bonuses), including
 phasing out the EITC at higher income levels, particularly for married couples (this is the
current approach for marriage penalty relief, first enacted in 2001 and increased in 2009)
and/or phasing out the credit at a slower rate;
 basing EITC amounts on individual worker characteristics rather than those of the tax
unit household (separating the EITC’s work subsidy from its child-related benefit).
Each of these options involves trade-offs, such as increasing the budgetary cost of the credit or leading
some individuals to be worse off in a given year relative to current policy. For example, beginning to
phase out the EITC for married couples at a higher income level would reduce the marriage penalty for
couples on the margin who are considering whether to enter or exit marriage, but would also increase
expenditures on moderate-income households that would have been headed by a married couple
regardless of the policy change. In addition, marriage penalties/bonuses can be thought of as the inverse
of single-parent bonuses/penalties. If this policy change were adopted, single parents without a married
partner would be more likely to receive less financial support from the credit than married couples
earning the same household income.

Author Information

Margot L. Crandall-Hollick
Patrick A. Landers
Specialist in Public Finance
Analyst in Social Policy

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