Making Work Pay: The Earned Income Credit

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February 19, 2002

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The Earned Income Credit (EIC) is a special tax benefit for working people who earn low or moderate incomes. The EIC reduces the tax burden on these workers, supplements their wages, and supports a transition from welfare to work. Workers who qualify for the EIC can get back some or all of the federal income tax taken out of their pay during the year and even get some additional cash. Workers whose earnings are too low to have paid taxes can still get the EIC. Annual benefits can be as large as $4,008, but only about 80 percent of those eligible actually claim the credit. The Child Tax Credit now works towards a similar end—reducing the tax burden of parents by up to $600 annually per qualifying child. Any remainder is then refundable to the parent.