Earned income tax credit

The earned income tax credit (EITC) is a refundable tax benefit for low- and moderate-income working people. It rises with earnings up to a point, then holds steady and phases out as income increases, so it rewards work. The amount depends on income and the number of children, and workers with no children receive a small credit.

Congress created it in 1975 and expanded it in 1986, 1990 and 1993. Because it is refundable, a family whose credit exceeds the tax owed receives the difference. It is among the largest federal programs for low-income families, and it is credited by many studies with raising employment and reducing poverty. Many states have their own versions.

It has had bipartisan support. Conservatives, including Milton Friedman, who proposed a negative income tax, and Ronald Reagan, who praised it, regard it as a better alternative to the minimum wage since it supports work without raising employers' costs; progressives favor it as an anti-poverty measure, and some advocate expansions for childless workers. Concerns include the high rate of improper payments and the complexity of eligibility rules. Compare the child tax credit.