What is the Earned Income Tax Credit?
The Earned Income Tax Credit (EITC) is a refundable tax credit that helps workers provide basic needs for their children. The size of one’s credit depends on two factors: income and number of children. The EITC incentivizes work by phasing in the benefit amount as workers earn more. The credit flattens at a maximum benefit level as workers’ earnings continue to rise, then phases out slower than it phased in.
Married couples and families with children receive greater EITC benefits. Families with three or more children may receive a federal credit of up to $6,143 in tax year 2014. The maximum federal credit is $5,460 for families with two children, $3,305 for families with one child, and just $496 for those without children. Louisiana’s EITC is 3.5 percent of the federal credit, which is less than one-fourth of the national average among states.
The EITC only goes to families who earn income through work and helps them afford basic necessities like food and utility payments. The EITC has been proven to help families transition off welfare, and it is the nation’s single most effective tool for combating child poverty. Additionally, the credit is good for small businesses and local economies because it helps families keep more of what they earn, which they spend at businesses in their communities.
Children in families that claim the EITC do better and go further in school, which allows them to work more and earn more as adults. And returning veterans rely on the credit to supplement their income as they make their way back into the civilian workforce. A boost in the value of the EITC would be a sound investment for a stronger Louisiana.
Why do we need the EITC now?
As Louisiana lawmakers cope with a historic budget crisis, it is imperative that the state Earned Income Tax Credit is maintained and strengthened, so that working Louisianans do not bear the brunt of any tax changes or increases that are enacted to raise much-needed revenue.
See the links below for more information about the benefits the EITC brings to the state’s individual regions, parishes, and districts, and to learn more about why it is one of the strongest anti-poverty tools policymakers have. As the 2016 sessions continue, check back here for more updated and in-depth information about Louisiana’s EITC.
Click here to read an updated version of LBP’s 2012 report – Louisiana’s EITC: A Smart Investment in Working Families