Earned Income Tax Credit
September 28, 2007
TO: ALL AGENCIES ADMINISTERING CHILD SUPPORT ENFORCEMENT PLANS APPROVED UNDER TITLE IV-D OF THE SOCIAL SECURITY ACT AND OTHER INTERESTED PARTIES
SUBJECT: Earned Income Tax Credit
BACKGROUND: The Office of Child Support Enforcement (OCSE) is working in collaboration with the Internal Revenue Service (IRS) to encourage State and local child support offices to provide information to low and moderate income working individuals and families regarding the Earned Income Tax Credit program.
The Earned Income Tax Credit (EITC), also known as the Earned Income Credit (EIC), is a refundable Federal income tax credit for low and moderate income working individuals and families. In 1975, Congress originally approved the tax credit program to offset the burden of social security taxes and to provide low-income individuals an incentive to work. When the EITC exceeds the amount of taxes owed, individuals who claim and qualify for the credit are eligible for a tax refund. Each year eligible individuals and families fail to claim the Federal tax credit because they are not aware that they qualify or that it even exists. The IRS estimates that 20-25 percent of Americans who qualify for the credit do not claim it. In addition to non-custodial parents, anecdotal comments from child support professionals indicate that many State and local employees also qualify for the EITC.
The EITC is designed to encourage low and moderate income individuals and families to seek employment. In 2005, more than 21.7 million working families/individuals received $39.8 billion in EITC refunds. Reportedly, the EITC is the government's largest cash assistance program targeted to low-income Americans.
In October 2006, the Center on Budget and Policy Priorities reported that, in addition to the Federal government, at least twenty States (including the District of Columbia) and several local governments also administered EITC programs.
To meet the eligibility criteria for Federal EITC, individuals and families must meet certain requirements of the IRS and file a Federal tax return even if they would not have to otherwise due to income below the filing threshold. Since the EITC has no effect on most welfare benefits, it is not used as a criterion to determine eligibility for Medicaid, Supplemental Security Income (SSI), food stamps, low-income housing or most Temporary Assistance for Needy Families (TANF) payments.
For Tax Year 2006, EITC was available to individuals and families whose earned income and adjusted gross income did not exceed $32,001($34,001 married filing jointly) with one qualifying child; and $36,348 ($38,348 married filing jointly) with two or more qualifying children. The maximum credit for Tax Year 2006 was $4,536 with two or more qualifying children and $2,747 with one qualifying child. Additional information concerning EITC thresholds is available at http://www.irs.gov/individuals/article/0,,id=150513,00.html
OCSE encourages agencies to learn more about EITC and to inform eligible individuals and families about its availability. Please visit the IRS website at http://www.irs.gov/individuals/article/0,,id=96406,00.html.
Office of Child Support Enforcement
cc: Regional Program Managers