Tomorrow is the 14th annual EITC Awareness Day – the one day each year when community organizations, anti-poverty advocates, and representatives from every level of government focus their attention on raising the profile of the Earned Income Tax Credit (EITC). The goal is to spread the word to potentially eligible families about the annual tax credit that millions of Americans count on to boost their spending power once a year.
EITC Awareness Day is held at the end of January, because it’s around this time each year when many Americans start filing their taxes. It’s also around this time each year that low-income workers are looking forward to a reprieve from months of stretching their budgets until tax time.
Over the last year, many will have fallen behind on bills because of fluctuating income, an illness, or an unexpected expense. Others may have had to take out a few (or more) payday loans to make ends meet. For those who are eligible for EITCs, annual refunds at tax time bring temporary relief and a little breathing room in household budgets.
But too many EITC recipients will still have to use their refunds to catch up on the bills and debt that accrued throughout the year. And in a few short months, they’ll be at risk of falling behind again.
The EITC is a substantial part of many Americans’ annual incomes, but currently families don’t receive it until after the year has ended. Consider a single mother with two kids who earned $30,000 last year. The EITC could add over $3,500 to her annual income, an 11 percent pay increase. If the EITC were paid monthly, she would receive nearly $300 in additional monthly income all year. Instead, that support will only be available to her a few weeks from now.
A simple and straightforward way to improve on the federal and state earned tax credits is to allow recipients to receive their EITC refunds as a monthly income boost instead of a once-a-year refund. The option for a monthly income boost, a key component of our Cost-of-Living Refund proposal, would allow families to get their refunds monthly throughout the year, increasing financial security for millions of Americans by helping them keep up with real-time needs.
A monthly income boost would also help them avoid debt traps, like predatory payday lenders that charge exorbitant interest and can punish low-income people with hundreds of dollars in fees.
The research is clear that too many Americans struggle every month to get by, and they need help more frequently than from once-a-year tax refunds. Though the federal and state EITCs have been unambiguously successful at reducing poverty, providing an option for more frequent payment would make them even more powerful tools to improve financial well-being throughout the year.
Many EITC recipients are eager for this option: A new Economic Security Project survey released today shows that a majority (55%) of low- and middle-income people would prefer payments during the year to a lump sum at tax time.
Our most recent report, The Case for a Monthly Cost-of-Living Refund, lays out the steps federal and state agencies can take to implement this change, and describes the latest research on how transforming annual EITC refunds into a monthly income boost could drastically improve the lives of millions of Americans.
The EITC is undoubtedly one of the most effective tools we have to reduce poverty and increase economic security. This EITC Awareness Day, let’s focus on how we can maximize its potential to help families prosper all year long.
Read more in our latest report.