About Earned Income Tax Credit (EITC)

The Earned Income Tax Credit (EITC) is the largest and most effective federal aid program for the working poor. Since it is tied to earned income, it provides lower-income workers with an incentive to work. It is structured to supplement the incomes of lower-wage workers by reducing their income tax liabilities and providing tax refunds to those who qualify. Each year, the EITC raises the incomes of almost five million people above the poverty line, half of whom are children. During the 2002 tax year, approximately 20 million people claimed the EITC, surpassing Food Stamps and TANF as the most utilized social welfare program; yet, four million EITC-eligible families annually fail to file for the credit.

Hawaii statistics:

During Tax Year 2005, approximately 27,000 EITC-qualified taxpayers failed to claim the credit. Since the average EITC refund was $1,675 in 2005, approximately $45,101,050 of EITC funds were unclaimed by Hawaii taxpayers in 2005. Since most low-income taxpayers use a substantial portion of their refunds to purchase much needed goods and services for themselves and their families, local businesses are adversely affected and the State loses income in the form of general excise taxes for every unclaimed EITC dollar. Applying an economic multiplier of 5 and a general excise tax rate of 4.167%, the failure of taxpayers to file for the EITC resulted in a $9,396,804 loss of income to the State.