2013 Mother’s Day Report: The Federal Earned Income Tax Credit & Child Tax Credit

Full report in PDF

The federal Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC) help low-income working parents make ends meet. Only working parents are eligible.

IN MICHIGAN

  • 600,000 working moms rely on these federal tax credits.
  • 847,000 working households rely on the federal EITC.
  • 566,000 working households rely on the federal CTC.

The EITC and CTC Effectively Reduce Child Poverty and Promote Work.

In 2011, the federal EITC and CTC lifted nearly 5 million children out of poverty—and more than 9 million people overall. In 2009, Congress made temporary improvements to these tax credits, and that played a big role. The improvements lifted 1.5 million people, and 800,000 children, out of poverty.

In Michigan, the federal EITC and CTC lifted 120,000 children out of poverty annually between 2009 and 2011.

These credits, and the recent improvements, promote work and reduce the need for welfare. To benefit from the federal EITC and CTC, a family must be working. Research has shown that EITC increases employment and reduces poverty among families with children, particularly single-mother families.

The EITC and CTC help families working hard in low-wage jobs meet basic needs, such as paying the rent and putting food on the table. A single mother who works full time at minimum wage earns about $14,800 per year—about $3,700 below the poverty line for a family of three.

The EITC and CTC help bridge that gap, extending a “hand up” to families who are working hard to provide for their children.

 

IN CONGRESS

U.S. Senators recently introduced the Working Families Tax Relief Act, which makes permanent the 2009 enhancements to the federal Earned Income Tax Credit and the Child Tax Credit. The legislation will allow more moms to take advantage of the federal EITC by simplifying it and lowering the eligibility age.

Cutting the EITC or CTC would increase poverty, harm mothers and hurt America’s economy.

For example, a single mother with two children who earns $14,500 per year would lose almost her entire Child Tax Credit if the 2009 improvements expire; her credit would fall from $1,725 to just $165. For a family struggling to afford basic needs like food and rent, a $1,560 hit would be very difficult.

A married couple with two children earning $25,000 per year would see their federal Earned Income Tax Credit fall by more than $400—and would lose an additional $260 in the Child Tax Credit—if the 2009 improvements expire.

Eleven million families would lose an average of $854 from the expiration of the Child Tax Credits improvements, while 76 million families would lose an average of $532 if the federal Earned Income Tax Credit improvements expire, according to Urban-Brookings Tax Policy Center estimates.

MICHIGAN EITC

States that have a state EITC can further help working families meet basic needs. Michigan has a credit equal to 6% of the federal credit. It helps some 800,000 working families and lifts an estimated 5,000 additional children out of poverty. The state EITC was reduced from 20% of the federal credit. Restoring the state EITC would offer a lot of help to families at a small cost.  

The state EITC is a small investment that makes a big difference for working families.