Review Method

State Earned Income Tax Credit positively impacts these policy goals:

SUMMARY

A refundable state EITC of at least 10% of the federal EITC is an effective state policy to impact:

A refundable state earned income tax credit (EITC) of at least 10 percent of the federal credit promotes healthier and more equitable birth outcomes, increases parents’ workforce participation, and improves household economic security, with the greatest effects for single mothers and their children. The benefits of the federal EITC are more well established in the research than the impacts of state credits, but evidence shows that state EITCs also have significant, positive effects on prenatal-to-3 outcomes.

State earned income tax credits (EITCs) are tax credits for low-income workers and their families that build on the federal EITC. States determine whetherto offer their own EITCs, set the generosity of their credits (typically a percentage of the federal credit), and determine whether their credits are refundable or can only reduce existing tax liability. States may also decide which groups are eligible for the supplement, such as workers with various immigration statuses, parenting statuses, or age ranges, within the constraints of federal law.

Federal and state EITCs are intended to incentivize labor force participation by increasing the financial returns to work and providing an annual lump-sum income benefit, which may reduce poverty among families with low incomes. These credits can improve the physical and mental wellbeing of parents and their children by alleviating poverty and improving families’ access to needed resources.

Rigorous evidence demonstrates that a refundable state EITC set at 10 percent of the federal credit or higher leads to healthier and more equitable birth outcomes. Research also suggests that the impacts of state credits are positive for parent employment and generally positive for household resource indicators such as child poverty and earnings. Evidence for other outcomes, including parent and child health and nurturing child-parent relationships, are more mixed and show many null effects for state EITCs.


Download the Complete Evidence Review

State Earned Income Tax Credit Evidence Review (PDF)

Recommended Citation:
Prenatal-to-3 Policy Impact Center. (2022). Prenatal-to-3 policy clearinghouse evidence review: State earned income tax credit (ER 05C.1022). Peabody College of Education and Human Development, Vanderbilt University. http://pn3policy.org/policy-clearinghouse/state-earned-income-tax-credit

Updated September 2022