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The Southern Regional Initiative to Improve Access to Benefits for Low Income Families With Children

Chapter 6

Earned Income Tax Credit

The Earned Income Tax Credit (EITC) is administered by the Internal Revenue Service and was established to supplement the incomes of families making low wages. The EITC can provide substantial assistance to poor and low income working families. In 1997, a family with one child can earn up to $25,760 and receive the EITC and families with two or more children can earn up to $29,290 and receive the EITC. The amount of EITC assistance received by families is based on a sliding scale. In 1997, a one-child family earning at the minimum wage can receive $2,210 in EITC cash and a two-child family earning the minimum wage can receive $3,656.

There are two ways a family can get the cash provided through the EITC. They can receive it at the end of the year when they file their tax return or they can get part of the EITC in advance with each paycheck and the rest when they file their tax return. A family must file a federal tax return to receive the EITC.

The EITC cash can help families pay for health coverage, child care, transportation or other needs. Getting the word out about the EITC should be a major goal for public and private organizations attempting to assist low income working families.

Outreach

Focus groups conducted by the Southern Institute in nine counties in GEORGIA and NORTH CAROLINA indicated the need for welfare agencies to educate families about the availability of the EITC. In GEORGIA, 41% of the EITC questions asked on the pretest were answered incorrectly by welfare and Transitional Medicaid families who participated in the focus groups. In NORTH CAROLINA, 38% of the EITC questions asked on the pretest were answered incorrectly.20 (See Chapter 2 for a discussion of post-test results.)

Additionally, in both GEORGIA and NORTH CAROLINA, caseworkers were not well informed on the EITC. The results of the site visits during the current southern regional project indicated that the experience in Georgia and North Carolina was not unusual. States expressed a desire to learn more about the EITC and to share information about it with families.

The information outreach brochures developed by the Southern Institute provide states with a tool to educate both caseworkers and families about the cash available through the EITC. The brochures specifically state that caseworkers have copies of the Form W-5, which is the EITC advance payment form to be filed with employers. This means that the agency must have ample copies of the form and caseworkers must be informed about the EITC. A caseworker in NORTH CAROLINA reported that the information in the brochure “forced us to really start promoting the EITC.”

Two states (MARYLAND and OKLAHOMA) and the DISTRICT OF COLUMBIA reported that they had worked with the Center for Budget and Policy Priorities to develop strategies to promote the EITC.
Project Get Together in OKLAHOMA is an example of an EITC outreach program. It is briefly described below.

Oklahoma

Project Get Together is a Tulsa anti-poverty agency which offers a program to educate and help low income families claim the EITC. The program receives funding from the Charles and Lynn Schusterman Family Foundation. Project Get Together receives strong support from Governor Frank Keating, including a special mailing to 37,000 employers with a personal letter. The project produces radio and TV public service announcements and works with the print media to promote the EITC. There is a toll free number operating during the tax season staffed by operators rather than answering machines. The project links with IRS Volunteer Income Tax Assistance (VITA) sites to provide assistance with tax preparation and electronic filing services at no cost.

Contact:

Steven Dow
Project Get Together
2020 S. Maplewood Street
Tulsa, OK 74112
918/835-2882

Asset Testing

The eligibility rules related to how the EITC cash is counted are inconsistent and confusing to families applying for health and other benefits.

With regard to income, federal law prohibits counting the EITC as income for purposes of calculating eligibility or benefit amounts for Medicaid, Supplemental Security Income (SSI), food stamps or housing. Each state determines whether or not to count the EITC as income when calculating TANF cash assistance benefits. No southern state reported that the EITC was counted as income for TANF benefits.

With regard to assets, if a state imposes a Medicaid assets test for children, federal law allows the EITC to be counted. Only two southern states (ARKANSAS and TEXAS) count assets in determining Medicaid eligibility for children. However, ARKANSAS specifically excludes the EITC as an asset in determining Medicaid eligibility for children. TEXAS counts the EITC as an asset for children using the food stamp policy for EITC lump sum payments.

Counting the EITC as an asset impedes children’s access to Medicaid and can also result in eligible children losing Medicaid coverage. Additionally, counting the EITC against families whose children would otherwise be eligible for Medicaid conflicts with state and federal policies which promote work.

Actions Needed to Improve Access to EITC and Actions Needed to Remove EITC Barriers to Medicaid Eligibility

Actions that can be taken to improve access to the EITC and to assure that EITC rules do not present barriers to Medicaid eligibility for children are outlined below:

  1. To assure that families learn about the EITC, states should conduct information outreach campaigns, with special efforts targeted to families on welfare, and provide EITC information and forms to eligibility workers.
  2. To assure that children do not lose Medicaid because their family claimed the EITC and did not spend their refund quickly, states should exclude the cash received through the EITC, whether through the advance method or end of year tax refund, from the state definition of assets.
  3. To avoid children losing Medicaid coverage, the federal government can enact the same policy it has for income and thus disallow the counting of EITC cash as an asset in determining Medicaid eligibility.

____________________

20 Sarah C. Shuptrine and Genny G. McKenzie, Information Outreach to Reduce Welfare Dependency: A Georgia Welfare Reform Initiative, Phase 1 Report, prepared for the Georgia Department of Human Resources, Division of Family and Children Services (Columbia, SC: Southern Institute on Children and Families, August 1996) p. 7; and Sarah C. Shuptrine and Genny G. McKenzie, Information Outreach to Reduce Welfare Dependency: A North Carolina Welfare Reform Initiative, Final Report (Columbia, SC: Southern Institute on Children and Families, May 1996) p. 8.