Family Tax Credits in the American Recovery and Reinvestment Act of 2009: Earned Income Tax Credit

Earned Income Tax Credit

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The Earned Income Tax Credit (EITC) provides a wage supplement for low-income workers, especially those with children. The credit equals a fixed percentage of earnings up to a maximum dollar amount and then phases out to zero; both the percentage and the maximum credit depend on the number of children in the family.

Under prior law, families with more than two children received no extra credit. The EITC was 40 percent of qualifying earnings for families with two or more children. For 2009 and 2010, the ARRA increases the credit to 45 percent of qualifying earnings for families with three or more children.

In addition, the marriage penalty has been reduced. When two low-income people marry, their EITC can drop because their higher combined income puts them in the range in which the EITC declines. For 2009 and 2010, the income range over which the EITC phases out for married couples (regardless of the number of children) has been increased to $5,000 more than the threshold for single people.

The EITC is fully refundable. Workers may elect to receive the EITC as a refund on tax returns filed the year after it is earned, or they may elect to receive a portion in their paychecks as it is earned.