Earned Income Credit:

Claimants' Credit Participation and Income Patterns, Tax Years 1990 Through 1994

GGD-97-69: Published: May 16, 1997. Publicly Released: Jun 16, 1997.

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Pursuant to a congressional request, GAO provided information on taxpayers' participation in the Earned Income Credit (EIC), focusing on: (1) EIC claimants' patterns of claiming the credit; (2) changes in their income in the years following an EIC claim; and (3) their income and filing status after leaving the EIC.

GAO noted that: (1) from tax year 1990 through tax year 1994, 27.3 million taxpayers claimed the EIC for families with children, at least once; (2) they made a total of 69 million claims totaling $73 billion (in 1996 dollars); (3) about two-thirds of these taxpayers claimed the credit at least twice during the 5-year period, and about half claimed it in 3 or more of the 5 years; (4) (5) most EIC claimants, on average, took the credit at least one more time; (6) not only did most taxpayers who claimed the EIC do so more than once, but many took the credit several years in a row; (7) on average, about half of the claimants in a year took the credit in each of the next 2 years; (8) Congress designed the EIC, in part, as an incentive for low-income for low-income taxpayers to find and keep jobs rather than relying on welfare; (9) most EIC claimants continued to file a return over the 4 years following a claim, 91 percent filed a return in the first year, and 82 percent did so in the fourth year; (10) on average, in the first and fourth years after a claim, respectively, 25 and 36 percent of claimants reported higher income while 21 percent and 29 percent reported lower income or did not file a return; (11) when GAO tracked taxpayers who at some point stopped claiming the EIC, GAO found that most filed a return in the first and second consecutive years of not claiming the credit the EIC, almost equal proportions reported income within the EIC range and above the EIC limit; (12) among taxpayers in their first year not claiming the EIC, almost equal proportions reported income within the the EIC range and above the EIC limit; (13) among taxpayers in a second consecutive year not claiming the credit, the proportion of those reporting income above the EIC limit increased; (14) about 40 percent of taxpayers who filed a return in the first year that stopped claiming the EIC also reported a change in filing status, predominantly from head of household status to single or married filing jointly; (15) to qualify for the EIC in tax year 1990, taxpayers needed to have at least one qualifying child and reported income less than $23,750 (in 1994 dollars); (16) if this maximum income limit would have applied in tax year 1994, about 2 percent of 1994 claimants of the EIC for families with children would not have been able to claim the credit because of income above the eligibility threshold; and (17) these taxpayers claimed about $48 million in EIC in 1994, or about 0.2 percent of the total EIC for families with children that year.

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