	Introduction

The Earned Income Tax Credit (EITC) is a refundable tax credit available to eligible workers earning relatively low wages. The EITC, enacted more than 40 years ago, has evolved from a relatively modest tax benefit to a significant antipoverty program. As the credit has expanded and changed over time, researchers have evaluated various aspects of the credit, including
how the EITC affects recipients' decision to start working (and number of hours they work); how the credit affects poverty rates; and difficulties that taxpayers have with complying with the credit's rules. This report reviews current economic research on the EITC. An understanding of the economic impacts of the credit, as well as its limitations and potential drawbacks, may inform future legislative modifications of the EITC or the structure of other social benefits provided in the tax code. In addition, the work-bonus plan was seen as a way to help reduce increasing payroll tax burdens. Unlike the expansion of the credit for workers with children, the main rationale for this "childless EITC" was not poverty reduction. Instead the credit was intended to partly offset a gasoline tax increase included in OBRA93. Another study found that 34% of the increase in employment among single mothers between 1993 and 1999 was due to legislative expansions of the EITC. For example, a single childless worker working full time at a minimum wage job (40 hours a week, 50 weeks a year) would receive a $59 credit in 2018. The EITC has had a significant impact on reducing poverty among recipients with children, but little impact among childless individuals. Finally, the EITC has increased inequity in the tax code between those with and without children. In addition, as illustrated in Figure 3 , the EITC results in a relatively small reduction in poverty rates among childless workers in comparison to workers with children. Among unmarried households with three children, CRS estimates 40.5% are poor without the EITC, falling to an estimated 32.3% when the EITC is included, a 20.5% reduction. While the EITC was not designed as a health or education benefit, current research suggests that it may improve the health and educational achievement of low-income populations. One concern with the EITC is that its complex rules and formulas make it difficult for taxpayers to comply with and difficult for the Internal Revenue Service to administer. Studies indicate that EITC errors by taxpayers (whether intentional or unintentional) result in a relatively high proportion of EITC payments being issued incorrectly. The IRS estimates that in FY2017, between $14.9 billion and $17.6 billion in EITC payments (i.e., between 21.9% and 25.8% of payments) were issued improperly. Concluding Remarks

When initially enacted in the 1970s, there were two major purposes of the EITC. First, the credit was meant to encourage the nonworking poor (only those with children) to enter the workforce and be more self-sufficient. Second, the credit was intended to help reduce the tax burdens of working poor families with children. Some policymakers at the time worried that payroll taxes would reduce poor families' take home pay to such an extent that they would need to rely on cash welfare. In the 1990s, the purposes of the credit were expanded to include poverty reduction, with a focus on encouraging welfare recipients—generally unmarried mothers—to work. Research on the EITC suggests that the EITC has generally achieved many policymakers' original goals: It has encouraged single mothers to enter the workforce and it has reduced poverty among families with children.
The Earned Income Tax Credit (EITC) is a refundable tax credit available to eligible workers earning relatively low wages. The EITC, enacted more than 40 years ago, has evolved from a relatively modest tax benefit to a significant antipoverty program. This report reviews economic research on the EITC. Understanding the economic impact of the credit, as well as its limitations and potential drawbacks, may inform future legislative discussions of the EITC and other refundable tax credits.
When initially enacted in the 1970s, there were two major purposes of the EITC. First, the credit was meant to encourage the nonworking poor with children to enter the workforce. Second, the credit was intended to help reduce the tax burdens of working poor families with children. Some policymakers at the time worried that taxes—especially payroll taxes—would reduce poor families' take-home pay to such an extent that they would need to rely on cash welfare. In the 1990s, the purpose of the credit was expanded to include poverty reduction, with a focus on encouraging welfare recipients—generally unmarried mothers—to work. At the time, the EITC was seen as a way to ensure that a full-time worker with children would not be in poverty.
As the credit has expanded and changed over time, researchers have evaluated various aspects of the credit, including the following:
Decisions About Working: The EITC has encouraged single mothers to enter the workforce, but generally has had little to no impact on the number of hours they work. For example, one study found that 34% of the increase in employment among single mothers between 1993 and 1999 was due to legislative expansions of the EITC. Poverty: The EITC has had a significant impact on reducing poverty among recipients with children, but little impact among childless individuals. For example, CRS analysis indicates that the EITC reduces the proportion of unmarried childless workers in poverty from 19.9% to 19.6% (a 1.5% reduction). In comparison, the EITC reduces the proportion of unmarried households with three children in poverty from 40.5% to 32.3% (a 20.2% reduction). Health and Education Outcomes: Although the EITC was not designed as a health or education benefit, current research suggests that it may improve the health and educational achievement of low-income populations. Fairness: The EITC has increased inequity in the tax code between those with and without children. The unequal benefit the credit provides to families with children in comparison to those without is largely due to the different objectives of the credit for these two populations. For workers with children who work full time at a minimum wage job, the EITC was intended to ensure that the family would not be in poverty. In contrast, the smaller childless EITC was designed to help childless workers offset a gas tax increase, and not intended to lift them out of poverty. Complex Rules: The EITC's complex rules and formulas may make it difficult for taxpayers to comply with and difficult for the Internal Revenue Service (IRS) to administer. Studies indicate that EITC errors (whether intentional or unintentional) result in a relatively high proportion of EITC payments being issued incorrectly. The IRS estimates that between $14.9 billion and $17.6 billion in EITC payments (i.e., between 21.9% and 25.8% of payments) were issued improperly in FY2017. The majority of the dollar amount of these errors is due to taxpayers incorrectly claiming children for the credit. In addition, the IRS may have difficulty ensuring that tax filers are in compliance with all the parameters of the EITC.