Earned Income Tax Credit: Effectiveness of Design and Administration

GAO discussed earned income tax credit as a wage supplement and its effect on work incentives. GAO noted that: (1) most low-income households do not qualify for the tax credit; (2) for the 18 percent targeted, the tax credit offsets payroll taxes, increases progressivity of the tax system, and provides a positive work incentive to the lowest income group with only a slight disincentive to other recipients; (3) the tax credit has been the source of more taxpayer mistakes than any other individual income tax provision; (4) only families with children are eligible to receive the earned income credit and they must meet eligibility requirements to claim a dependent or a child who qualifies for the credit; and (5) most employers and credit recipients are unaware that the earned income credit is available in advance payments.