The Earned Income Credit: Why It’s Not Cool to Hate on Poor People

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Whoa these are some pretty bold but admittedly persuasive arguments. Low-income people are the ones who benefit most from the EIC--major corporations are! Also, I wasn't sure if I'd qualify for this credit since I'm middle class, but it turns out I do.

The Earned Income Credit (or EIC) is a tax credit that’s available to low-income Americans. As it’s a credit and not a deduction, filing for it often results in people getting a refund, and a large refund at that.

It’s been called the biggest cash-assistance program in the country. And you don’t have to be on welfare to get it.

But before you get outraged about this credit that you work so hard and pay taxes to supply, consider this:

  • The people receiving the EIC (or EITC) are working and paying taxes, too. The amount you get refunded is proportionate to the amount you make. It drops off after reaching a certain income, like a bell curve.
  • It’s been argued and proven through research that it actually encourages work rather than collecting welfare.
  • It’s also been argued that it’s a minimum wage subsidy. It’s no secret that big companies own our government.  This tax credit has been issued and renewed by Republicans and Democrats alike over the years. (Think Reagan and Clinton just to name a couple.)

    Instead of raising minimum wage, the government compensates people who live on wages that can’t even accumulate to higher than the poverty line at full-time by giving them back a chunk of money every April. Companies don’t have to pay their workers as much as a result.

    The biggest beneficiaries from this credit are not the low-income recipients, but the mega corporations that aren’t required to pay their workers a living wage.

The minimum wage vs. the cost of living is so disproportionate right now that many states have proposed to raise it to a rate where anyone working  a full-time job would make enough to be above the poverty-line.

Would this be better or worse for low-income workers?  Would it disqualify them from receiving the EIC? Would the raise compensate for the refund lost? It would all depend on how much you’re making and how the tax law changes impact you over the next couple of years.

Want to claim this credit, but don’t know how? Or think you won’t qualify? You’d be surprised. Get free help with your taxes from the VITA program. Or, if you prefer filing online, check out MyFreeTaxes, which is free even for middle-income earners and small business owners.

For example, if you’re one of those imaginary people popping out babies to get the most out of the system, you know that right now you max out your EIC “earning” opportunities with three children. I wouldn’t have a baby this year simply for tax purposes.  Because next season you’ll max out at two.

UPDATE: Since the writing of this post, legislation passed that extended the 3 child limit.

Low-Income Households Aren’t the Biggest EIC Beneficiary

But proportionately there are so few people who work the system as opposed to people who are in the system because they’re really trying to make life work.

The biggest problem in our government spending isn’t the poor.  The bigger problem is the rich who would impose subsidies on everything from sugar cane to the everglades to the minimum wage so that they can make even more money.

And that’s on both sides of the aisle.

Have a little sympathy for those celebrating a brief relief from their struggles this spring.

Featured on JLCOLLINSNH:  VITA, income taxes and the IRS

39 thoughts on “The Earned Income Credit: Why It’s Not Cool to Hate on Poor People

  1. Kretek

    You can’t even live without two minimum wage jobs. Whether you need the EIC or not, you still are dying. College graduates are dying too. Maybe it will make businesses really rethink hiring their nephew with full sleeve tattoos and a barbell piercing for their lead sales position at the consignment store. The old “don’t worry about your job, worry about your emergency fund!” mentality should be dead. It’s “live paycheck-to-paycheck at $28,000 after college and pray to jesus for a raise while racking up thousands in credit card debt or starving to death!”

    1. femmefrugality

      Thanks so much for your comment, Kretek! It’s good to have you! I agree that it’s extremely difficult to dig your way out if you’re starting at the bottom. I try to post about things people can do or programs they can utilize that may help them get out of the paycheck-to-paycheck cycle. Because you’re right: it’s vicious. And if you’re stuck in it, it’s extremely difficult to get to the point where you can take positive financial steps like setting up an emergency fund.

    1. femmefrugality

      It is incredibly sad. All the more reason to try to pull yourself up to that next rung; but it’s incredibly difficult when you’re starting from the bottom. I agree with you about people who are gaming the system; Nicole and Maggie’s comment is really interesting as far as that goes, too.

  2. nicoleandmaggie

    Amen. And I’m a card carrying economist.

    (Though there is no evidence that people have babies to qualify for govt programs in the US. There is evidence that Ronald Reagan made that up, or rather one of his speech writers made that up. Currently anybody having babies to get benefits is really stupid because babies cost more than benefits.)

    1. femmefrugality

      Huh! I never knew that before. And they’d have to be really dumb to do it for the EIC. There may be some other programs where that could be beneficial, but keeping up with the paperwork and social workers who really don’t care and consistently mess up paperwork might as well be a full-time job in itself. I don’t know that many people appreciate that aspect of life for those that are on welfare.

      1. Melissa

        Yeah there was the whole push (I don’t know how widespread it was, but it was an effort) among Reagan and the Republicans to demonize government benefit programs, particularly those for the poor, so they made up the “welfare queen” stereotype to “appeal” to low-info voters who would see the “queens” as an us-vs-them situation.

        It worked quite well, as we can see today. You can learn more about it by watching Ava DuVernay’s documentary 13th- highly recommend.

        Also, I think there should be universal income for all Americans up to a certain amount, as well as fully paid for health insurance and higher taxes. But that’s not happening in my lifetime most likely!


    Politics are always a bit touchy, so let me be careful here. The EIC, if it benefits corporations more than individuals, should be eliminated in favor of a higher minimum wage adjusted for the poverty line periodically. I would like to see people working for their money rather than collecting via a credit, as it gives them the opportunity to gain skills that may further benefit them. Given that, the EIC is a necessity for many as of now, and so has its place. Note on college grads receiving the EIC on an extended basis: I truly feel that for these folks college was not a good investment. College educated and making less than the poverty line? Same situations less the debt equals a much better situation.

    1. femmefrugality

      They are. I try not to post about them too often and hedge my bets when I do. But the EIC is a pretty mutually supported issue on both sides of the aisle. Which either is or isn’t a problem, depending on your viewpoint. Those college students; I feel bad for them. If I had been able to finish on the traditional path I’d be with them right now. The economy crashed in the the middle of their education. There’s no jobs. What can you do? I’m glad I’ll be graduating without debt, but realize that the delay in the completion of my studies would not be a path many would choose or even recommend.

    2. femmefrugality

      Oh, and the people who receive this credit do work. And the return they get is proportionate to how much they do. Would it be better economically to receive that money via a paycheck rather than the EIC? We’d have to see how they’d change the tax laws when they changed the minimum wage.

  4. jlcollinsnh

    Great job, FF. This is the clearest and simplest explanation of the Earned Income Credit I’ve yet to read. I liked it so much I just put up a link to it on my own post regarding the IRS and the VITA program.

    The EIC is one many of our VITA clients qualify for, as they are for the most part the working poor. It is designed to encourage people to take virtually any job they can rather than reverting to welfare. I’ve seen it make a huge percentage difference in the annual income of folks who need it most.

    But, of course, people being people there are those who will try to game the system. A few years back our local VITA site uncovered this scam:

    As you point out the EIC benefit increases based on the number of children claimed as dependents, but the maximum is three. A local minister gathered his flock together. Those people with more than three children “loaned” the extras to those with fewer children. Everybody got the maximum EIC. Very clever. Very illegal.

    1. femmefrugality

      Thanks so much! That truly means a lot coming from you. Go VITA!

      That is such a crushing story. A religious leader using his influence to encourage his followers to lie and cheat…by using their children nonetheless. So incredibly sad. I don’t know how he thought no one would notice.

  5. Meredith

    The title alone had me sold on this post. I love the savvy with which you write about this, and such excellent points about minimum wage in this country. GREAT JOB explaining this like it is!

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  7. Emily @ JohnJaneDoe

    The only thing about EITC is that it is so skewed towards families…the income limits for those without dependents is incredibly low. It would be good if we were offering encouragement to single and childless couples as well.

  8. Prudence Debtfree

    I live in Canada, where there are minimum wage laws. It varies across the country, but the lowest is $10.30 per hour, and the highest is $12.50. Where I live, it’s $11.25. Although these wages do not guarantee a ticket out of poverty, they offer some assurance of meeting basic needs. I like the idea of a minimum wage.

    1. Femme Frugality

      We do have a minimum wage here, too, though federally it’s not as generous. The minimum wage thing has died down a bit since I initially wrote this with no major changes, but it still raises some interesting questions.

  9. Tommy @ LeisureFreak

    Excellent article. It is very important that people understand that there is the EIC for the low income. Many will load up their W4 with dependent numbers when hired at a minimum wage job to have little or nothing held out for taxes and then decide to not file their taxes thinking they had none held out or too little to go after. Especially if they have no access to the internet and free online filing available and need to pay to have their taxes done. The EIC can help many especially if used to payoff a high interest debt thus reducing monthly expenditures or put into a savings account to supplement their low income through the year. I was a tax guy in a previous life. I saw the positive impact it could make in peoples lives. They would almost cry when I told them about it and what they were getting back. Sure the EIC has been documented as a target of fraudulent tax filing schemes. People should rail against that and call for relentless pursuit and rigorous prosecution instead of calling for elimination or reduction of the EIC.

    1. Femme Frugality

      So true! File especially if you think you owe nothing… You’re probably owed a refund! And the VITA program does offer in person help for households up to $54k, though income limits may be lower depending on your locale. Good thing, too, because you’re spot on about internet access.

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