Income Volatility: New Research Results with Implications for Income Tax Filing and Liabilities

Income volatility may complicate tax filing and predicting eligibility for critical tax benefits, such as the earned income tax credit. Half of all working-age adults¬—and 64 percent of low-income, working-age adults—have household income that for at least one month of the year will spike above or dip below 25 percent of their average monthly income. Nearly 40 percent of low-income, working-age adults have household income that spikes or dips in at least six months of the year. Adults living in households with self-employment income or adults moving in and out of households experience these spikes or dips more frequently than adults in other households.