Use of the Earned Income Tax
Credit Among People with
Disabilities
Presented by:
Nanette Goodman, Independent Consultant
Paper coauthored with:
Michael Morris, Syracuse University
Debra Brucker, University of New Hampshire
State-of-the-Science: Advancing Evidence-Based Practices
and Policies to Close the Employment Gap
Washington, DC
April 9, 2014
Overview
• EITC is refundable tax credit
• Sliding level of benefit based on EARNED
INCOME and number of children
• One of the largest safety net programs (2012)
Beneficiaries
(in millions)
Food Stamps
47
EITC
SSI
TANF
27
7.9
1.9 (families)
Expenditures
(in billions)
$80
$63
$49
$31
Why it is important to look at the use
of the EITC among people with
disabilities NOW
• Some suggest expanding the EITC rather than
raising the minimum wage as a way to help the
working poor.
• Obama’s 2015 budget proposal includes changes
to the EITC
• Double the current EITC for childless workers.
• Reduce the minimum age a taxpayer is eligible to
receive this credit from 25 years to 21 years.
• Increase the maximum age from 65 to 67
Stated Goals of the EITC
• Reduce poverty, especially childhood poverty
• Reduce reliance on welfare programs,
• Provide an incentive to work by subsidizing
low wages, and
• Provide relief from regressive payroll taxes.
Features of the EITC
• Refundable
• The credit is available to all individuals and couples,
regardless of age, who have qualifying children.
– BUT…the benefit is not available to workers under age 25 or
over 65 who do not have qualifying children.
• The benefit for workers without qualifying children is
minimal.
– The definition of qualifying child is a bit complicated by is
basically a related child under age 19 who lives with the adult at
least half the year.
• In 23 states, workers that qualify for the federal EITC can
also claim a refundable credit on state income taxes.
Earned Income Tax Credit for couples
filing jointly, 2012
$7,000
$6,000
$5,000
$4,000
EITC
0 children
1 child
$3,000
2 children
3+ children
$2,000
$1,000
$0
Income
Features specifically relevant to
workers with disabilities
• Social Security Disability Insurance, SSI, or
military disability pensions are not considered
earned income and cannot be used to claim the
EITC
• Receipt of the EITC does not generally reduce the
worker’s access to other benefits.
– Federal and state EITC payments are not considered as
income for most public benefits including Medicaid,
SSI, SSDI, Food Stamps, or federally assisted housing
programs.
– BUT… treatment of EITC payments in calculating
assets varies across programs and states..
Limitations of the EITC for workers
with disabilities
• The EITC has limited value for people without
qualifying children.
• Transition-age workers without children are
ineligible for the EITC.
• The inconsistent and confusing calculations of
whether EITC refunds count as assets for other
safety net programs may discourage savings.
• Evidence suggests that the EITC puts
downward pressure on wages (Leigh 2010)
Method
• Analysis of the March 2012 Current
Population Survey.
• Limitation—CPS imputes the value of the EITC
– Underestimates the number of people and the
value of the benefit overall
– Does not allow analysis of the take-up rate
Average EITC use among people with and
without disabilities age 18-64
by Poverty Level, 2012
Percent eligible for the
EITC**
With
No
Disability
Disability
All
10%
11%
Average amount of EITC among
eligibles
No
With Disability
Disability
$1,301
$2,073
Income as a Percent of the Poverty Level
Under 100%
14%
31%
$1,248
$2,353
100%-150%
17%
35%
$1,736
$2,557
150%-200%
16%
25%
$1,354
$1,844
Over 200%
4%
3%
$846
$1,218
60% of EITC eligibles with disabilities
benefit by less than $500/yr
With Disability
No Disability
70%
60%
50%
40%
30%
20%
10%
0%
Less than $500
501-2,000
2,001-4,000
over 4,000
Intersection between the structure of the EITC
and characteristics of people with disabilities
• The EITC offers a much larger benefit for workers with
“qualifying children” than for those with either no
children or children who are older than 19.
– Low income people with disabilities tend to be older and
are less likely to have qualifying children.
• The amount of the credit is calculated as a percentage
of wages or “earned income.”
– Low income people with disabilities are more likely to
receive income from Social Security, Supplemental Security
Income and Veterans benefits and other sources that
cannot be counted in the calculation so the benefits are a
much lower percentage of their total income.
Conclusions
• As currently structured, the EITC is not as
effective an anti-poverty or work incentive
program for people with disabilities as it is for
low income people without disabilities.
Recommendations
Disability advocacy groups should guard against
efforts to increase the EITC as an alternative to
raising the minimum wage unless the credit for
childless workers is expanded.
Recommendations
• Expand the EITC amount for workers without
qualifying children.
• Lower the age of eligibility to 18 for all youth
with and without disabilities to build
behaviors that support work and reduced
reliance on social security benefits.
• Permanently disregard an EITC refund from
any public benefit resource testing and thus
encourage long term saving.