	The Earned Income Tax Credit1

The Earned Income Tax Credit (EITC) is a refundable tax credit available to eligible workers earning relatively low wages. An EITC-eligible family may also receive a portion of the credit in the form of advanced payments. Approximately 83% of the tax returns had a reduction or disallowance of the EITC as a result of the manual review. The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA; P.L. The American Recovery and Relief Act of 2009 (ARRA; P.L. While the American Taxpayer Relief Act of 2012 (ATRA; P.L. 112-240 ) made the EGTRRA provisions for marriage penalty relief permanent, the increase in marriage penalty relief to $5,000 (indexed for inflation) made by ARRA was extended for only five years (the expansion will sunset on December 31, 2017). 107-16 ) made several changes to the EITC that were scheduled to expire on December 31,2010. Changes to the EITC that were scheduled to expire include
changing the definition of earned income for the EITC so that it does not include nontaxable employee compensation; eliminating the reduction in the EITC for the alternative minimum tax (AMT); and simplifying the calculation of the credit through use of AGI rather than modified AGI. The ARRA created the category for families with three or more children, with a credit rate of 45%, for tax years 2009 and 2010 only. The ARRA also increased the phase-in amount for married couples filing joint tax returns so that it is $5,000 higher than for unmarried taxpayers in tax year 2009, and indexed for inflation beginning in tax year 2010. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 ( P.L. 111-312 ) extended the ARRA provisions for two years (through 2012). 112-240 ) extended the ARRA provisions for five years (through tax year 2017).
The Earned Income Tax Credit (EITC or EIC) began in 1975 as a temporary program to return a portion of the Social Security taxes paid by lower-income taxpayers, and was made permanent in 1978. In the 1990s, the program was transformed into a major component of federal efforts to reduce poverty, and is now the largest anti-poverty entitlement program. Tax year 2009 data show a total EITC amount of $59.7 billion for 27.2 million tax returns, yielding an average tax credit of $2,195. Most of the EITC (87.1%) was received as a refund (EITC exceeded tax liability) by low-income workers.
The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA; P.L. 107-116) made several changes to the credit, including simplifying the definition of earned income to reflect only compensation included in gross income; basing the phase-out of the credit on adjusted gross income (AGI) instead of expanded (or modified) gross income; and eliminating the reduction in the EITC for the alternative minimum tax (AMT).
The American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5) created the category for families with three or more children, with a credit rate of 45%, for tax years 2009 and 2010 only. The ARRA also increased the phase-in amount for married couples filing joint tax returns so that it is $5,000 higher than for unmarried taxpayers in tax year 2009, and $5,010 in tax year 2010.
The changes to the credit made by EGTRRA and ARRA were set to expire on December 31, 2010. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (P.L. 111-312) extended the EGTRRA and ARRA provisions for two years (through 2012).
The American Taxpayer Relief Act of 2012 (ATRA; P.L. 112-240) permanently extended the EGTRAA provisions, but extended the ARRA provisions for only five years. The expiration of the ARRA provisions for the EITC is one of the legislative issues for Congress.
This report will be updated as legislative activity warrants.