Fixing the Marriage Penalty in the EITC

David Ellwood and
David Ellwood Scott M. Black Professor of Political Economy - Harvard University
Isabel V. Sawhill

September 20, 2000


This document offers a brief examination of the key policy issues surrounding the EITC and marriage penalties. The EITC is designed to support low income working families with children. It provides a subsidy (up to $3,816 in 1999) for families with children and low earnings. Current research shows that the EITC has been successful in raising the income of such families, increasing rewards/incentives to work among many low skill workers, and in stimulating greater work effort by single parents.

A less well understood feature of the EITC is its impacts on marriage incentives. The EITC can generate sizable marriage bonuses for some couples and marriage penalties for others precisely because it is targeted on low-income families with children. Those with no children or no earnings qualify for little or nothing. And because benefits are phased out as family income rises, those with children and high earnings also get little or nothing. Thus it creates marriage rewards for couples where a non-working mother is considering marriage to a working man without children. “Her” children and “his” earnings allow them to qualify for the EITC when neither would qualify otherwise. Conversely, when a single parent is already working and qualifying for the full EITC, marriage to another worker will usually result in an EITC penalty. “His” earnings leads “her” EITC to be reduced since family income has been pushed up enough that the family qualifies for less than she did alone.