May 13, 2021
State Policy Director
May 13, 2021
The Biden administration’s American Families Plan would permanently extend a critical expansion of the Earned Income Tax Credit (EITC) included in the American Rescue Plan enacted in March, substantially increasing the credit for low-wage workers without children in the home while making it available to more adults through expansions of the age and income limits.
Overall, the EITC enhancement would provide a $12.4 billion boost in 2022 if made permanent, benefiting 19.5 million workers. It would have a particularly meaningful impact on the bottom 20 percent of eligible households who would receive more than three-fourths of the total benefit. Forty-one percent of households in the bottom 20 percent of earners would benefit, receiving an average income boost of 6.3 percent, or $740 dollars.
This change, originally brought about under the American Rescue Plan Act of 2021, is set to expire at the end of tax year 2021. Without further action by Congress, the EITC could revert to a credit where workers under 25 and over 64 without children in their home receive no benefit from the existing federal EITC. And workers ages 25 to 64 receive very little value, a mere one-third of the available maximum enhanced credit. Fortunately, President Joe Biden’s American Families Plan would permanently extend these changes, ensuring that young and older workers, 19 to 24 and 65 and older, remain eligible while boosting the credit from roughly $540 to $1,525 for childless workers making up to nearly $22,000 in tax year 2022.
The continuation of this enhancement is critical. Throughout its history, the EITC has served as one of the nation’s most significant and effective anti-poverty programs, helping low-wage workers meet their basic needs in the short-run and bolstering their long-run economic security. However, it has provided little or no benefits to workers without children in the home. For these adults, aged 25 through 64, the maximum credit is small and income limits are restrictive under permanent law.
For state-by-state data on the impact of the expansion, download the data here.
Those who continue to be left behind
As vital as the continuation of this enhancement would be, lawmakers should do more to ensure that the policy reaches as many low- and middle-income workers as possible. Even in its enhanced form, the EITC continues to leave behind non-citizens (PDF) who file using Individual Taxpayer Identification Numbers (or ITINs). Undocumented workers were especially hard hit during the COVID recession, policies have overlooked or denied them federal benefits.
The expanded EITC also excludes the youngest adults (those 18 years of age) and all students under 24 who are attending school at least part time. This group is also often overlooked when it comes to policies that promote economic wellbeing. Congress can act now to ensure that immigrants, young adults and students receive the opportunity to benefit from the federal EITC. Their inclusion would provide these workers a leg-up as they continue to enhance, shape and improve our communities.
A look toward states leading the way
California and Colorado became the first two states to extend their EITCs to immigrants filing with ITINs. They led the way for leaders in Maryland, New Mexico, and Washington State to follow suit this year.
On enhancing benefits for workers without children in the home, the District of Columbia forged the way (with a larger credit and higher income eligibility thresholds) and has since been joined by a growing number of states. Maine lawmakers increased the percentage of the federal credit going to this group of individuals. California, Maine, Maryland, Minnesota, New Jersey, and New Mexico have lowered age eligibility of their state-level EITCs to either 18 or 21 years of age. California removed its age cap on accessing the credit, making it available to older workers who remain in the workforce at age 65 or older.
The Biden administration and Congress should look to the good examples set by state lawmakers in these areas as they consider next steps and the future of bolstering the reach of this meaningful income-boosting, poverty-reducing federal credit.