Today is EITC Awareness Day. The economic impact on the Texas economy and working families is huge.
Coinciding with the onset of tax season, EITC (Earned Income Tax Credit) Day is meant to raise awareness about the financial significance of this refundable tax credit that lifts millions of Americans, including about 765,000 Texans, out of poverty (as defined by the Census Bureau’s Supplemental Poverty Measure). New research has also found that this credit not only helps families receiving the credit get by, but also get ahead by improving the school performance and potentially the lifetime earnings of their children. In Tax Year 2012, Texas once again led the nation with the most EITC dollars claimed with over $6.9 billion, an increase of nearly 30% since Tax Year 2007. For Texas, the average refund is nearly $2,600; only Alabama has a higher average EITC refund.
EITC Awareness Day also serves as a clarion call to encourage eligible filers to file their taxes at a Volunteer Income Tax Assistance (VITA) site. In 2012, more than 114,000 Texans filed their federal income taxes at more than 250 VITA sites, a 10% increase from the previous year.
The anti-poverty impact of the EITC, as well as the refundable Child Tax Credit (CTC), was even more enhanced by the American Reinvestment and Recovery Act (ARRA) expansions of both refundable tax credits. As with the EITC, the CTC pulls family income above the poverty line, with the CTC itself lifting over 411,000 children out of poverty in Texas last year. With the recent enactment of the American Taxpayer Relief Act of 2012, these EITC and CTC enhancements are extended through Tax Year 2016.
In addition to the financial stability provided by the EITC–enabling families to catch up on utility bills and pay down debt–the EITC is also helping families move up the economic ladder. Recent research has found that it helps children do better in school by reducing the toxic stress kids living in deep poverty experience. It also may increase children’s lifetime earnings potential — emerging research has found that raising a poor family’s income by $3,000 a year (a fairly typical amount for a poor family to receive from the CTC and EITC) between a child’s prenatal year and fifth birthday is associated with a 17 percent increase in earnings in adulthood.
Many families are also leveraging the “tax time moment” to climb the economic ladder by setting aside a portion of their refund for savings and investment This EITC day, we highlight and applaud the numerous Texas VITA sites that are promoting savings through the split refund option. In 2012, nearly 60 VITA sites offered modest incentives for filers to save a portion of their refund, and over 1,800 Texans participated, generating over $590,000 in savings—primarily through the OpportunityTexas, United Way Greater Houston, and United Way San Antonio efforts, as documented in Dollar for Dollar. Because of the momentum of these projects, we expect more savers at more sites in 2013.
Happy EITC Day, Texas!