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A Local Ladder for Low-Income Workers: Recent Trends in the Earned Income Tax Credit

Elizabeth Kneebone

Findings

An analysis of IRS data on low-income working families who received the federal Earned Income Tax Credit (EITC) in tax years 2000 and 2004 reveals that:


  • In tax year 2004, more than one in six taxpayers nationwide received the EITC. Cities in the South, such as Jackson, MS (41 percent) and El Paso, TX (37 percent), had among the highest rates of EITC receipt in the country.

  • By 2004, large metropolitan suburbs were home to 2.4 million more EITC recipients than their cities. While a higher share of central-city taxpayers (22 percent) than suburban taxpayers (13 percent) received the EITC in 2004, the number of suburban EITC recipients expanded by nearly 1.4 million from 2000 to 2004, versus less than half a million in cities.

  • More than 46 percent of EITC filers claimed the Additional Child Tax Credit (ACTC) in tax year 2004, and together the EITC and ACTC accounted for more than 70 percent of refunds paid to these low-income working families. The average EITC credit was $1,834 in 2004, while the average ACTC amount was $895. In total, EITC filers claimed $48.9 billion through the EITC and ACTC in 2004.

  • The proportion of EITC recipients who filed their returns through volunteer tax preparers increased steadily in recent years, but by 2004 remained far lower (under 2 percent) than the share using paid preparers (over 70 percent).Free tax preparation services reach considerable proportions of EITC filers in cities such as Tulsa, OK; Rochester, NY; and Albuquerque, NM; volunteer rates remain much lower in suburban communities, however, despite the fact that they have more EITC recipients than central cities.

The EITC, and increasingly the ACTC, played an important role over the first half of this decade in supplementing the wages earned by low-income working families—particularly in regions hardest hit by the economic downturn and subsequent slow recovery. Researchers, policymakers, and practitioners should give further attention to the implications of the nation’s growing suburban population of EITC earners, to the important overlaps that exist between filers who benefit from the EITC and the ACTC, and to bolstering the growing yet still-limited reach of volunteer tax preparation programs.

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