The Earned Income Tax Credit and Child Tax Credit
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July 2020
The Earned Income Tax Credit and Child Tax Credit
BUILDING ON SUCCESS FOR HEALTHY FAMILIES
When working families struggle to make Key Takeaways
ends meet with low wages, their health
• The EITC and CTC are two successful federal tax credits for
and well-being are adversely impacted. workers with low and moderate incomes that boost family
The Earned Income Tax Credit (EITC) and Child Tax financial resources and lift families out of poverty.
Credit (CTC), which families can claim when they
• Research shows that expansions of these working-family tax
file taxes, are two of our nation’s most effective credits directed towards families with the lowest incomes
programs for addressing economic strain and lift- would effectively lift children out of poverty, improve the
ing people out of poverty. Over the past forty-five health and well-being of families, decrease health care costs,
years, research has shown that the EITC helps fami- and stimulate the economy.
lies meet basic needs, stimulates the economy, and
• Expansions to the EITC and CTC have historically had a larger
promotes work. Research over the past few years
net positive impact for people of color – particularly Black and
has shown that in addition to economic benefits, Latinx families – who are overrepresented among low income
the EITC also improves the health of children and workers and disproportionately experience higher rates of
adults both in the short term and throughout their poverty and poor health compared to white families.
lives. Though less studied, the CTC is similar in
• Permanent expansions to the EITC and CTC are critical for im-
design to the EITC, and emerging evidence demon-
proving current and future health, especially as the economic
strates its ability to improve financial stability and
crisis created by COVID-19 disproportionately pushed low-income
health. The EITC and CTC alleviate financial hard- families, immigrants, and communities of color deeper into
ship and help families get ahead. poverty, with lasting impacts on health inequities.
The EITC and CTC alleviate financial hardship Additionally, the EITC has been shown to effectively
and help families get ahead boost workforce participation, which is linked to further
reductions in poverty in the short and long-term.4 While
The EITC and CTC have a strong history of broad bipartisan
the success of the credits to directly bring families out of
support in Washington, DC and among many state legis-
poverty and lessen poverty is well established (see figure
latures due largely to their two-fold ability to lift millions
1), they do not include indirect effects on boosting earn-
of families out of poverty and improve the economy. The
ings, and thus the credits' anti-poverty impacts are likely
primary mechanism through which these credits allevi-
understated.
ate financial hardship is through a tax deduction and in
some cases a refund. Using the Supplemental Poverty Research demonstrates that children who live in house-
Measure, in 2018, the combined income boosts of EITC holds that received the EITC and/or CTC have better school
and CTC together lifted 10.6 million Americans out of performance, greater college enrollment, and increased
poverty — including 5.5 million children — and made 17.5 work and earnings in adulthood.5 Research shows that
million less poor — of whom 6.4 million were children.1 these academic achievement benefits are amplified with
While these tax credits serve a larger number of white the size of the EITC received for all children regardless of
households, they lift out of poverty a greater proportion race and ethnicity, with some suggestion that the benefit
of people of color who disproportionately live in poverty.2 of larger EITCs are greater for children of color.6 Further-
The credits also have significant impacts for families with more, putting money back into the pockets of individu-
young children under six, the age group with the highest als enables increased spending in local economies as
poverty rates.3 families use their credits to purchase healthy foods and
Figure 1 The EITC and CTC alleviate poverty
17.5 Million 10.6 Million
ALL MEMBERS
of families
who received
EITC and CTC
6.4 Million 5.5 Million
Less poor
CHILDREN after receiving
EITC and CTC
in families
who received Lifted out of poverty
EITC and CTC after receiving
EITC and CTC
2 Children’s HealthWatch • childrenshealthwatch.org17.5 Million 1
J U LY 2 0 2 0 childrenshealthwatch.org
ALL MEMBERS
Definitions
age EITC amount per tax filer in 2017 of families Average EITC amount per tax filer in 2017
$2,488 $2,488
who received
What is the EITC? The Earned
EITC and CTC
Income Tax Credit (EITC) is a federal
tax credit for low- and moderate-
Which can
incomebeworking
used people
for that Which recipients often use for
encourages and rewards work as 6.4 Million 5.5 Million
well as offsets federal payroll and
$200 $2000
income taxes. The EITC is a refund-
Less poor
able tax credit. Twenty-nine states Groceries Transportation, Larger expenses
/month /year
and the District of Columbia have CHILDREN or medicine utilities, or like housing
after recei
for transportation, for larger expenses like EITC and C
established state-specific EITCs to in families childcare security deposits
utilities, or childcare housing security deposits
supplement the federal credit. Thewho received Lifted out
EITC is currently delivered in one EITC and CTC after recei
sum when taxes are filed. EITC and C
What is the CTC? The Child Tax Credit
(CTC), which is available to tax pay-
ers across a broad income spectrum,
helps working families offset the
hildren in
amilies who cost of raising children. The tax
eceive the credit, which is worth up to $2,000
ITC experienceper eligible child under age 17 at the
etter end of the tax year, is subtracted
from the total amount of federal How do the EITC and CTC
t income taxes a filer would otherwise Increase economic
owe. The CTC includes a refundable stability and improve
evelopment health outcomes?
component. Six states have enacted
th state-specific versions of this credit INDIVIDUALS Communities
health to supplement the federal credit.
The CTC is currently delivered in one
sum when taxes are filed. Enable families Help local
to pay for basic economies
What is a “refundable” tax credit?
needs
A refundable tax credit means
that if the amount of the credit
is greater than the amount of tax Boost long-term Improve
earnings maternal health
owed, the Internal Revenue Service
outcomes
(IRS) sends a tax refund for the
difference. Most tax credits are
Improve
nonrefundable – meaning a refund Increase ability to
child health
is given only up to the amount of pay backend rent
outcomes
tax owed – but some are fully or and avoid eviction
partially refundable. Currently the
Provide money Improve
EITC is a fully refundable tax credit,
for healthy food educational
while the CTC is partially refundable
outcomes
up to $1,400.
EITC & CTC For Healthy Families • July 2020 3$2,488
Which can be used for
basic goods, make necessary home or car repairs, pay families receiving the EITC have fewer behavioral health
bills including rent and utility arrearages, and save for problems, such as anxiety and depression.10 Given these
$50
the future.7,8
$200 $2000
positive health benefits, the Centers for Disease Control
and Prevention recently categorized the EITC as one of
/week /month /year
The EITC and CTC are evidence-based solutions the 14 key evidence-based, cost effective interventions
for improving health for improving health in early childhood.11 Mothers receiv-
for
The groceries
benefits of the EITC and CTC extend forwelltransportation,
beyond fortolarger
ing the EITC are more likely have signsexpenses
of good health, like
including lower risk of high blood pressure and inflam-
or medicine
financial utilities,
stability for families. Previous expansions in or childcare housing
mation and reduced reports security
of depression deposits
and stress. 12,13
the EITC have been strongly associated with a decrease
Further, research shows that the EITC may even improve
in infants born with low birth weights among pregnant
life expectancy among people with low incomes in the U.S.14
women eligible for the credit.9 This relationship is no-
table because low birth weight is damaging to the long- While the CTC has fewer studies directly linking it to
term health and developmental potential of children and health improvement, its structure is similar to that of the
costly to the health system, yet few medical interventions EITC and its documented effectiveness in reducing child
are available that effectively reduce the risk of low birth poverty make it highly probable that it has similar health
weight. In addition to benefits for infants, children in benefits for children and families. Research shows that
boosting working families’ incomes improves opportuni-
ties for their children and is associated with improve-
ments in children’s educational outcomes.5
Children in Disrupting racial income and wealth disparities
families who Racial barriers to economic opportunities, driven by his-
receive the torical and continued discriminatory policies and prac-
tices, have played a significant role in determining pres-
EITC experience ent wealth and income distribution. Racial income and
better wealth disparities are particularly staggering between
white and Black households; an examination of wealth
in the US found the net worth of a typical white family
is nearly ten times greater than that of a Black family.15
+ Birth weight This racial wealth gap remains even for families with the
same income, demonstrating that although wealth is in-
+ Cognitive development fluenced by present income, it is significantly tied to past
earnings and generational inheritances.15
+ Mental health
People of color are more likely than white workers to be
+ Behavioral health employed in low-wage jobs, to be paid poverty wages,
and to be paid less for comparable work.16 A recent analy-
sis of government data showed Black and Latinx house-
4 Children’s HealthWatch • childrenshealthwatch.orgJ U LY 2 0 2 0 childrenshealthwatch.org
holds at the 90th percentile of their income distribution the important role of non-custodial parents in the lives
earned only sixty-eight and sixty-five percent as much as of children and the challenges many of these parents
white households at their 90th percentile, respectively.17 with low-incomes face in providing support to their chil-
In other words, when occupying the same percentile on dren,20 ensuring these workers are not taxed into pov-
income distributions by race and ethnicity, people of erty will better ensure they have financial resources to
color earn less. Although the EITC and CTC benefit many adequately support their children. Further, recognizing
white households, because people of color earn less the positive health effects of the EITC on birth outcomes,
and are more likely to work low-wage jobs — reflecting expansions of the credit prior to the birth of a child may
both the legacy and continuation of discrimination and further improve infant health and decrease health care
structural barriers to opportunity — these credits have costs and utilization.
predominately benefited Black and Latinx households, in
While the EITC is available and fully refundable for eli-
particular women of color.18 While policies that dismantle
gible workers beginning with the first dollar earned, the
structures of racism and increase economic opportuni-
effects of the CTC are diminished by its current structure
ties for people of color in the long term are urgently
of the credit. Presently, the CTC is phased in with parents’
needed to significantly reduce the racial wealth gap, the
annual earnings beginning at $2,500 such that families
EITC and CTC are critical and existing tools that can off-
with very low incomes that would benefit the most actu-
set racial income disparities. With higher proportions of
ally receive only a partial credit or no credit at all. While
people of color living in poverty, expansions to the EITC
this phase-in approach is seen as a way to incentivize
and CTC — alongside systemic policy change to address
work, it results in inequitable access to the credit and
root causes of racial inequity — will greatly improve
its benefits. Due to this structure, over one-third of all
families’ daily financial circumstances. children in the U.S. do not receive the full benefit of
the CTC because their families earn too little to access
Building on success: The need to strengthen the maximum credit.21 Consequently, Black, Latinx, and
and expand the EITC and CTC young children, along with children in families headed by
single parents, are disproportionately left behind by the
The EITC and CTC have long been considered bipartisan,
CTC.19 Furthermore, the structure of both the EITC and CTC
evidence-based, and effective programs to improve the
exclude unpaid caregivers who stay at home to care for
health and financial stability of families. However, both
their children, often due to difficulties accessing high-
credits fall short of reaching some of the workers and
quality, affordable child care. Research from Children’s
families who need them the most, limiting their potential
HealthWatch demonstrates that for many caregivers,
anti-poverty impacts.
particularly those of color, difficulties accessing child
Currently, the EITC’s potential is only realized for families care constrain their ability to work, which in turn increase
raising children in their homes since the credit does not their likelihood of reporting poor health outcomes and
provide enough support for workers without dependent economic hardships without additional support.22
children — even though many may be non-custodial Researchers and policy makers have demonstrated that
parents or young adults preparing to start families. For changes to the CTC structure, including making the credit
some workers not claiming children, the EITC benefit is fully refundable and allowing for monthly payments,
so low that many are even taxed into poverty.19 Given would drastically improve the credit’s ability to eliminate
EITC & CTC For Healthy Families • July 2020 5the most extreme forms of poverty and support families Conclusion
with the lowest incomes.23 A consensus report by the Na-
Expansions to the EITC and CTC as well as steps to de-
tional Academies of Science, Medicine, and Engineering
crease access barriers will effectively improve the health
shows that making the CTC fully refundable would cut
and well-being of families and the economy and lift
in half the number of children living in deep poverty —
millions of children out of poverty. The described policy
those living in families with incomes less than half of the
improvements will appropriately target families who
federal poverty level.24 This expansion would particularly
are struggling the most and people of color who dispro-
benefit people of color who are historically impacted by
portionately experience poverty and poor health. Addi-
low wages and increased hardship and could be used as
tionally, states can adopt or expand working-family tax
an effective tool — in concert with other policies — to
credits to increase the impact. Permanent expansions
decrease the racial wealth gap.
and improvements to these anti-poverty credits are par-
Although the EITC and CTC benefit millions of families and ticularly important now, as the recession precipitated by
children every year, it is unfortunately not claimed by all COVID-19 has exacerbated health disparities and pushed
who are eligible. This is particularly true for the EITC; cur- families with children deeper into poverty, both of which
rently one in five eligible families do not claim the EITC, highlight and deepen existing racial inequities. Commit-
largely due to lack of knowledge about the tax credit and ment to economic justice through these tax credit expan-
how to access it. One opportunity to address this barrier sions as well as other policy tools that accelerate racial,
and increase EITC claims is through Volunteer Income Tax income, and wealth equity are essential for the health
Assistance (VITA) sites. These evidence-based services and well-being of families with children and society as
streamline families’ access to tax refunds by providing a whole.
free, IRS-certified, and highly accurate tax preparation
to low and moderate-income taxpayers. This, in turn,
generates income tax returns that benefit the health and
financial stability of families and their communities.
6 Children’s HealthWatch • childrenshealthwatch.orgJ U LY 2 0 2 0 childrenshealthwatch.org
Policy Recommendations
to support healthy children and families
Child Tax Credit (CTC) the EITC and CTC. Expanding eligibility to taxpayers
who file with an ITIN would allow tax-paying immi-
1. Ensure families, including those with the lowest in-
grants who are currently excluded from these cred-
comes, are able to access a fully refundable CTC. Re-
its to claim and benefit from the EITC and CTC.
search shows that increasing the credit amount and
decoupling it from earnings would cut child poverty 7. Include a lookback provision in both the EITC and CTC
by 42% overall, 52% among Black children, 41% among that allows the use of prior incomes to make credits
Latinx children, and 36% among white children.25 more responsive to recessions. This would provide a
vital lifeline to workers and families whose incomes
2. Increase the value of the CTC for young children to
dissipate during economic downturns.
offset the higher cost of raising young children who
are at a critical stage of development and experi- Earned Income Tax Credit (EITC)
ence higher rates of poverty.
8. Include family care giving as a type of activity that
3. Expand the CTC to dependents under age 18. Cur- constitutes work to allow those that stay at home to
rently the CTC is only available for dependents un- care for children to access the tax credit.
der age 17, limiting its ability to reach all children.
9. Lower the age eligibility, raise the upper age limit,
4. Index the CTC for inflation to respond to the changes and expand benefits of the EITC for workers not rais-
in costs of living. ing children in their home to enable non-custodial
parents to better support their families and allow
Child Tax Credit (CTC) &
individuals to receive adequate credit amounts
Earned Income Tax Credit (EITC)
Volunteer Income Tax Assistance (VITA)
5. Provide families with the option to receive CTC and
EITC payments on a monthly basis to help families 10. Increase funding for Volunteer Income Tax Assis-
manage finances throughout the year and prevent tance (VITA) sites. Increased funding for VITA sites,
debt or arrearages. which offer free, highly accurate tax help to low and
moderate-income filers, would decrease filing barri-
6. Enable taxpayers and their children who file with an
ers and enable more families to access the credit.
Individual Tax Identification Number (ITIN) to access
EITC & CTC For Healthy Families • July 2020 7July 2020
About Children’s HealthWatch Children’s HealthWatch is a nonpartisan network of pediatricians, public health researchers, and
children’s health and policy experts. Our network is committed to improving children’s health in America. We do that by first
collecting data in urban hospitals across the country on infants and toddlers from families facing economic hardship. We then
analyze and share our findings with academics, legislators, and the public. These efforts help inform public policies and practices
that can give all children equitable opportunities for healthy, successful lives.
Authors Charlotte Bruce, MPH, Research and Policy Analyst; Allison Bovell-Ammon, MDiv, Director of Policy Strategy; Richard
Sheward, MPP, Director of Innovative Partnerships; Félice Lê-Scherban, PhD, MPH, Principal Investigator; Deborah A Frank, MD,
Founder and Principal Investigator; Ana Poblacion, PhD, MS, Research Scientist; Stephanie Ettinger de Cuba, MPH, Executive Director;
John Cook, PhD, MAEd, Principal Investigator
Acknowledgement This report was made possible by generous funding from the Annie E. Casey Foundation.
For more information, please contact Allison Bovell-Ammon,
allison.bovell-ammon@bmc.org or 617-414-3580
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Boston Medical Center, 801 Massachusetts Ave., 1st floor, Boston, MA 02119 | 617.414.6366 | www.childrenshealthwatch.orgYou can also read
