Report

Boosting the Earned Income Tax Credit for Singles

In 2017, one in five workers in the United States earned less than $11.40 per hour. The substantial number of American workers earning such low wages reflects years of wage stagnation and growing inequality in the face of increased automation, international trade, and domestic outsourcing. Although these trends show no sign of letting up, the Earned Income Tax Credit (EITC) is one policy that has helped counter their effects. By providing a refundable credit at tax time, it is widely viewed as a successful public policy that is both antipoverty and pro-work. But most of its benefits have gone to workers with children. The maximum credit available to workers without dependent children — who have been buffeted by the same labor market forces — is just over $500, and they lose eligibility entirely once their annual earnings reach $15,000.

Paycheck Plus is a test of a more generous credit for low-income workers without dependent children. The program, which provides a bonus of up to $2,000 at tax time, is being evaluated using a randomized controlled trial in New York City and Atlanta. This report presents findings through three years from New York, where over 6,000 low-income single adults without dependent children enrolled in the study in late 2013. Half of them were selected at random to be eligible for a Paycheck Plus bonus for three years, starting with the 2015 tax season.

Main Findings

Although the program sought to mirror the process by which filers apply for the federal EITC, bonus receipt was not automatic with tax filing; participants had to actively apply each year. A majority of eligible participants received a bonus each year of the study, though bonus receipt fell over the three-year period as many participants cycled in and out of eligibility.

Paycheck Plus increased after-bonus earnings (earnings after accounting for taxes and the bonus) and reduced severe poverty.

The program modestly increased employment rates. Positive effects on employment were concentrated among women and the more disadvantaged men in the study.

Providing individuals with information about employment services may increase the employment effects of Paycheck Plus.

Paycheck Plus led to an increase in tax filing rates and the use of Volunteer Income Tax Assistance sites for tax preparation.

The program also led to an increase in child support payments among noncustodial parents.

The findings are consistent with other research on the federal EITC, indicating that an effective work-based safety net program can increase incomes for vulnerable and low-income individuals and families while encouraging and rewarding work. Future reports from the project will include findings from Atlanta, covering a different policy environment and labor market.