In 2015, the city replaced its local Earned Income Tax Credit (DCEITC) policy for childless workers as a fixed percentage of the Federal Earned Income Tax Credit (EITC) with a formula that appreciably increased both the local credit amounts and maximum eligible income. (See full policy brief here.) In this new formula, the city applies the federal maximum credit amount to a much larger income range ($6,600 to $18,111) and the federal phase-out credit rate to higher income levels ($18,111 to $24,040). As shown in Figure 1, the DCEITC encompasses all the city’s childless workers eligible for the Federal EITC plus a substantially larger number of workers who earned between $14,800 and $24,040 in annual wage income in 2015.
In 2014, 53,839 tax filers received the EITC and DCEITC. These were comprised of 41,391 filers with qualified children and 12,448 without qualified children (Figure 2). With the expansion of the DCEITC for childless workers in 2015, there was a 26.8 percent increase in total DCEITC claimants with nearly all the increase being attributed to 12,490 new childless workers (2,983 who were also eligible for the Federal EITC and 9,507 who were still not eligible for the Federal EITC and not previously eligible for the DCEITC).
Structure of the Childless Worker EITC: DC v. Federal
A comparison of the structure of the expanded DC childless worker EITC with the federal credit focuses on the five income ranges. In Figure 3, the first income range (wage and salary income less than $6,600), labelled Income Range 1, is the phase-in range for both the federal and District credit, where both the federal and local credits increase by 7.65 cents for every additional dollar of earnings. The second income range (income between $6,600 and $8,250), Income Range 2, is the plateau of the EITC structure, where the credit is $503 for both the federal and local credits, regardless of earnings. Income Range 3 (income between $8,250, and $14,800) is the phaseout range for the federal credit, where the federal credit is reduced by 7.65 cents per dollar of earnings, while the District credit remains at $503 regardless of earnings. For Income Range 4 (income between $14,800 and $18,111) each childless worker receives a DC credit of $503 regardless of earnings but receives no federal credit. And for Income Range 5 (income between $18,111 and $24,040), a DC childless worker receives a DC credit that decreases by 7.65 cents for every additional dollar of earnings up to an income level of $24,040. Beyond $24,040 in income, a resident is ineligible for the DCEITC childless worker credit.
The DCEITC Impact on Low-income Households
Table 1 shows how the DC childless worker credit varies across the identified income ranges and compares the DC childless worker credit to that of the federal’s for Tax Year 2015, the first year the new DC credit was in effect. In 2015, there were 2,983 new claimants who were eligible for both the Federal EITC and the DCEITC (Income Range 3), and 9,507 new DCEITC claimants who were not eligible for the Federal EITC (Income Ranges 4 and 5).
In tax year 2015, the District expanded the eligibility for its local credit for childless workers by extending the credit to childless workers with income from $14,800 to $24,040; it also increased the local credit amounts. The maximum Federal EITC for a childless worker in 2014 was $496, and the maximum local credit amount a childless worker could receive was $198 (Figure 4). Under the 2014 policy, childless workers in a narrow range of income ($6,600 to $8,150), making up 12.8 percent of all DCEITC childless workers, claimed a combined maximum amount of $694. Workers that earned more than $14,550 that year were not eligible for either the federal nor local credit.
Under the new 2015 policy, 12,632 claimants (50.7 percent of all DCEITC childless workers) that earned between $6,600 to $18,111 in income received a DCEITC of a maximum amount of $503 (Figure 5). And further, claimants with income between the narrow range of $6,600 and $8,250 received a combined EITC and DCEITC of $1,006. Stated differently, childless workers with income less than $8,250 received a DCEITC that was a 100 percent match of their federal credit, and claimants with income between $8,250 and $14,800 received a DCEITC that was an average of 192.3 percent more than their Federal EITC.
The DCEITC in a Changing District
The expanded DCEITC for childless workers provides additional income support and security for the city’s lowest income earners, encourages labor market participation, and helps to facilitate poverty alleviation. But, it may also be incentivizing continued city residency for a growing number of the city’s lowest income earners through higher refundable tax credits that could be used to help counter the rapidly rising costs of living in the city.