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Disparities in Knowledge of the EITC

Elaine Maag

Published: March 14, 2005
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The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

© TAX ANALYSTS. Reprinted with permission.

Note: This report is available in its entirety in the Portable Document Format (PDF).


The earned income tax credit, administered through the federal income tax system, is the largest cash assistance program for low-income families.1 The EITC provides up to $4,200 a year for working families with two or more children—less for families with fewer children. The EITC is refundable so the credit is not limited to the amount of taxes a family owes. In 2002 the EITC lifted around 4.9 million people out of poverty (Llobrera and Zahradnik, 2004).

Policy makers designed the EITC to encourage work by subsidizing people's wages. Indeed, some research suggests that single mothers do in fact work more as a result of the EITC (Eissa and Hoynes, 1998; Meyer and Rosenbaum, 1999). However, the credit might be more effective if all potentially eligible families knew about it.

Data from the 2001 National Survey of America's Families (NSAF) show large disparities in who knows about the EITC amongst families with income below twice poverty. Only a small portion (27.1 percent) of low-income Hispanic parents know about the EITC—significantly less than their peers of other races and ethnicities. A smaller portion of Black, non-Hispanic parents report knowing about the EITC than other non-Hispanic parents (68.0 percent vs. 73.5 percent). Also, parents with the least education report significantly less knowledge than parents who completed college (for more information, see Maag, 2005).

These disparities in knowledge are of particular concern, because similar results were reported using the 1998 NSAF (Ross Phillips, 2001). The IRS and many community service groups have expanded outreach efforts since that time, but knowledge still lags among some groups. It is possible that even people who do not report knowing about the EITC receive the EITC perhaps as the result of receiving help from a volunteer or paid preparer.


Low-Income Parents' Knowledge of the EITC
  Heard of the EITC
All 58.1%
Race
Hispanic 27.1%*
Black, Non-Hispanic 68.0%*
Other (a) 73.5%
Education Level
Less than high school 39.8%*
High school graduate 65.0%
Some college 71.4%*
College + (a) 64.8%
Source: Author's tabulation using the 2002 National Survey of America's Families.
* Significantly different from comparison group at 0.05 level.
a. Base category for statistical comparisons.

References

Internal Revenue Service (2004). "Individual Income Tax Returns: Preliminary Data, 2002," SOI Bulletin, Winter 2003-2004. http://www.irs.gov/pub/irs-soi/02inplim.pdf. (Accessed on November 15, 2004).

Llobera, Joseph and Bob Zahradnik (2004). "A Hand Up: How State Earned Income Tax Credits Help Working Families Escape Poverty in 2004," Washington, D.C.: Center on Budget and Policy Priorities, May.

Maag, Elaine (2005). "Paying the Price? Low-Income Parents and the Use of Paid Tax Preparers," Assessing the New Federalism Policy Brief B-64, Washington, DC: Urban Institute, February.

Ross Phillips, Katherin (2001). "Who Knows About the Earned Income Tax Credit?" Washington, D.C.:The Urban Institute, Assessing the New Federalism Policy Brief No. B-27, January.

U.S. Department of Health and Human Services, Administration for Children and Families (2002). "Overview of Federal Funds Available and Spent in FY2002 by Grant Year," http://www.acf.dhhs.gov/programs/ofs/data/overview_2002. html. (Accessed on November 15, 2004).

Notes

1. Preliminary estimates of the 2002 non-administrative costs of the EITC total $38.7 billion (IRS 2004); the combined expenditure of state and federal spending on cash assistance in Temporary Assistance for Needy Families totaled 14.6 billion (HHS 2002).


Note: This report is available in its entirety in the Portable Document Format (PDF).