Earned Income Tax Credit (EITC) |
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The Earned Income Tax Credit (EITC) is designed to help move low-income families out of poverty by providing an incentive to work. The EITC is a "refundable" tax credit, which means that it is available to workers even if they did not earn enough wages to pay state income taxes. In order to claim the EITC, a tax filer must have some earnings from work.
There is both a federal EITC and a Wisconsin EITC, and many workers are eligible for both. The Wisconsin EITC is based on a percentage of the federal EITC (0%, 4%, 11%, or 34% depending on the number of qualifying children). Nationally, 1 in 5 people eligible for the EITC fail to claim the credit. 
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The 2011-2013 budget substantially cut the state EITC, which has increased the amount of taxes that lower-income families have paid to the state over the past four years by approximately $114 million. In addition, in both the 2011-2013 and 2013-2015 budgets, the state has used more federal funding for the Temporary Assistance to Needy Families (TANF) program (see below) to pay for the EITC in order to free up more GPR for other purposes, which has created shortfalls in TANF funding.
The Governor’s proposed budget funded the state EITC at its current level.
Joint Finance Committee Proposed Changes to the 2015-2017 Budget
The JFC allocated more TANF funds to the EITC by about $5 million this year and $7 million next year. This increase in TANF funds corresponds with a one to one decrease in GPR funds. So, while the amount of funding for the EITC did not change much, the source of the funding changed slightly. Experts have warned that this type of funding may eventually create a shortfall for various TANF programs.
The JFC allocated more TANF funds to the EITC by about $5 million this year and $7 million next year. This increase in TANF funds corresponds with a one to one decrease in GPR funds. So, while the amount of funding for the EITC did not change much, the source of the funding changed slightly. Experts have warned that this type of funding may eventually create a shortfall for various TANF programs.
Final 2015-2017 EITC Budget
The Legislature approved the Governor's EITC budget as amended by the JFC.
Impact on Wisconsin Women & Girls
The decision to not increase the state EITC is disappointing, since the program has been a successful, bipartisan approach to reducing poverty and incentivizing work. The state EITC is an important mechanism for offsetting the regressive nature of state and local taxes, which disproportionately burden lower-income individuals because of their reliance on sales and property taxes that take a larger share of lower- and middle-income earners’ income than a progressive income tax.
According to the National Women’s Law Center, the EITC is especially important for women, as women’s wages are lower than men’s. Women also account for the vast majority of single parents. Nearly one-third of the women who work in low-wage jobs are mothers with dependent children and nearly half of these mothers are single parents. Nationally, four out of ten single-mother families live in poverty. Boosting the EITC would better allow these working families to afford crucial family expenses, such as child care costs.
According to the National Women’s Law Center, the EITC is especially important for women, as women’s wages are lower than men’s. Women also account for the vast majority of single parents. Nearly one-third of the women who work in low-wage jobs are mothers with dependent children and nearly half of these mothers are single parents. Nationally, four out of ten single-mother families live in poverty. Boosting the EITC would better allow these working families to afford crucial family expenses, such as child care costs.
Resources
- For more information about the EITC and its impact on women, see this resource from the National Women's Law Center.
