ReWORKing Welfare Technical Assistance for States and Localities. 39. The Earned Income Credit


The Earned Income Credit (EIC)-also known as the Earned Income Tax Credit, or EITC-can help make work pay for low-income families. The EIC is a federal tax credit that was worth as much as $3,556 for some families in tax year 1996. While the EIC did not generally count as income under the AFDC program, this is a state decision under TANF. States can support work effort by not including the EIC in eligibility and benefit calculations.

Educating participants about the EIC and helping them take advantage of it can enhance their success and the success of your program. The following suggestions can assist you in promoting the EIC:

  • Publicize this valuable benefit. Hang posters promoting the EIC in prominent places around the program office. Pass out brochures about the EIC to participants, insert brochures in mailings, and include the EIC in discussions about financial incentives and transitional benefits. Include information about the EIC in materials given to participants once they find a job.
  • Train staff in work first and its partner organizations about the EIC. Programs often fail to effectively market the EIC to participants because the staff do not clearly understand it themselves.
  • When explaining the benefits of the EIC to participants, make sure that the idea of "refundability" is clear-that is, even if they don't owe taxes, they can still get a credit if they file a tax return.
  • Let participants know whether the EIC will count against their grant if they are combining welfare and work.
  • Discuss the pros and cons of advance payment with participants who find jobs. People who choose advance payment will get a portion of the EIC in their paycheck and the rest at tax time. While advance payment can increase employees' take-home pay, some people prefer to get a lump sum. Employees should understand these and other trade-offs so that they can make an informed choice.
  • Have tax forms available to participants throughout the year, but particularly during tax season. These forms are available free of charge from the IRS (1-800-TAX-FORM), and you are allowed to make photocopies.
  • Work with local business associations to educate employers about the EIC and promote its use.
  • If your program has a job developer, he or she should market the EIC to employers. Many employers do not know that the EIC will supplement the wages of low-wage workers at no cost to them and do not understand that employers can add the EIC to the employee's paycheck each pay period.
  • Let participants know where they can get free tax-filing assistance, or look into providing assistance on site. VITA (Volunteer Income Tax Assistance) is a free IRS-sponsored program to help low-income workers fill out their tax forms. Staff can make lists of local VITA sites available to participants and inform them of what information they need to take to a VITA site.