A free tax preparation service for low and moderate
The Earned Income Tax Credit (EITC), enacted by Congress in 1975, is a refundable tax credit that increases the income of low-and-moderate income working families through the provision of tax reductions and wage supplements. The program’s primary purpose is to aid employed workers in achieving and maintaining their independence from welfare by making work more attractive.
The EITC has been widely praised for its effectiveness in reducing poverty and has been instrumental in closing the poverty gap for the country’s working poor. Since low-income families pay little or no Federal income taxes, the refunds received represent increases in income, not reductions in taxes owed, providing a greater level of support. The EITC is designed to fill a gap between what can be earned in the labor market and what is required to meet household needs.
Our client surveys indicate that most families use the EITC to pay for basic necessities, such as housing, food, and transportation and in some cases, to obtain additional education or training to boost their employability and earning power. This type of spending improves the health of local economies and creates a much needed “ripple effect” leading to more vibrant, stable communities.
In 2010, across the country, the EITC lifted about 6.3 million people out of poverty, including about 3.3 million children. The number of children living in poverty would have been one-quarter higher without the EITC.
For young children, moving out of poverty is particularly important. Research has found that lifting income in early childhood not only improves a child's immediate educational outcomes, but is associated with more schooling, more hours worked, and higher earnings in adulthood. Another study showed a link between an increase in the EITC for families with more than two children and an increase in achievement in middle childhood for the children of these families. Researchers also believe that increased income can led to improved health for parents – that in turn, helps them to better support their children’s learning.
Clearly, the need for all eligible families to claim and receive the EITC is critical. It is estimated 20% of those eligible do not claim this valuable credit thus creating the need for innovative outreach strategies and Volunteer Income Tax Assistance (VITA) programs. VITA programs help low-income, working families make their way through the tax code, claiming the full amount of any tax refund for which they are qualified. Without VITA help, many struggling households will turn to the help of commercial tax preparers who charge fees in excess of $350. Since 2005, the VITA program in Cuyahoga County has saved EITC filers over $7 million in fees and high interest loans.
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