APril 2010

The Earned Income Tax Credit: 

Capitalizing on Tax Incentives

Introduction

Poverty remains a major issue nationwide, and it especially impacts individuals with 

disabilities. overcoming the barrier of poverty and creating long-term personal 

economic stability requires more than just employment. Working-age adults with 

disabilities are three times more likely to live in poverty than their non-disabled peers. 

this brief will provide information about the Earned income tax Credit (EitC), which 

is an important tool to encourage work and improve economic status.

EITC Basics 

Congress first approved the EitC in 1975 as a refundable tax credit for eligible lowincome workers with and without disabilities. there are three major purposes of the 

EitC: (1) to reduce the tax burden on low-income workers, (2) to provide a work 

incentive, and (3) to supplement wages. Every year, millions of taxpayers claim this 

credit, resulting in tens of billions of dollars in tax refunds.

many working individuals with and without disabilities do not realize they may qualify 

for the credit and are unfamiliar with the concept of a “refundable credit.” A refundable 

credit offers a benefit to workers whose earnings are too small to have any tax liability, 

for example, those who typically earn too little to file a return.

Eligibility for the EITC

single or married people who worked full or part-time can qualify for the EitC, 

depending upon their income level. 

the American recovery and reinvestment Act (ArrA) provides a temporary increase 

in the earned income tax credit (EitC) for taxpayers with three or more qualifying 

children. the maximum EitC for this new category is $5,657. ArrA also increases 

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the beginning point of the phase-out range for the credit for all married couples filing 

a joint return, regardless of the number of children. these changes apply to 2009 and 

2010 tax returns.

the credit begins to phase out at $21,420 for married taxpayers filing a joint return 

with children and completely phases out at $40,463 for one child, $45,295 for two 

children and $48,279 for three or more children. for married taxpayers filing a joint 

return with no children, the credit begins to phase out at $12,470 and completely 

phases out at $18,440.

the threshold amounts for 2009 tax returns follow:

• $13,440 ($18,440 if married filing joint) if you do not have a qualifying child 

• $35,463 ($40,463 married filing jointly) if you have one qualifying child 

• $40,295 ($45,295 married filing jointly) if you have two qualifying children 

• $43,279 ($48,279 married filing jointly) if you have three or more qualifying 

children 

the maximum EitC for 2009:

• $5,657 with three or more qualifying children 

• $5,028 with two qualifying children 

• $3,043 with one qualifying child 

• $457 with no qualifying children 

investment income must be $3,100 or less for the year.

to claim the EitC, a worker must file a tax return with the irs (either form 1040, 

1040A, or 1040EZ). Workers do not have to calculate their own EitC. if they choose, 

the irs will calculate it for them. 

Workers with Disabilities 

to be eligible for the credit, an individual must have earned income, also known as 

wages or salary. most disability-related public benefits, such as supplemental security 

income (ssi) or social security disability insurance (ssdi) (see attached brief on 

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social security benefits), are not considered earned income. many individuals with a 

disability, and between the ages of 25 and 64, who worked at least part-time, would 

qualify for the EitC. if an individual with a disability received either ssi or ssdi and did 

not work at all in the previous tax year has a spouse who did work, then they together 

may qualify for the credit. 

Earned income credit has no effect on certain benefits. 

Any refund you receive because of the EitC and any advance EitC payments you 

receive will not be considered income when determining whether you are eligible for 

the following benefit programs, or how much you can receive from these programs. 

however, if the amounts you receive are not spent within a certain period of time, 

they may count as an asset (or resource) and affect your eligibility.

• medicaid and supplemental security income (ssi) 

• food stamps 

• low-income housing 

temporary assistance for needy families (tAnf) benefits may be affected. Please 

check with your state.

do not overlook your state credit. if you can claim the EitC on your federal income 

tax return, you may be able to take a similar credit on your state or local income tax 

return. for a list of states that offer a state EitC, go to www.irs.gov/eitc. 

it is also important to know that eligible workers with disabilities who are filing for 

the EitC for the first time may file retroactively, to claim the credit for a three-year 

period. 

The retroactive EITC Claim 

mary Williams is not married and has no children. she worked part-time in 2004, 

2005, and 2006 and currently receives ssi benefits. in each of the three past years, 

mary earned $5,000. mary’s earnings would entitle her to a $387 tax refund, by 

claiming the credit in 2006. mary has not filed a tax return for any of the past three 

years, because she did not earn enough to pay taxes. since the EitC can be claimed 

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ThE EarnED InComE Tax CrEDIT: CapITalIzIng on Tax InCEnTIvEs

retroactively, mary can now submit to the irs a tax return for each year and be 

entitled to a refund of more than $900. 

Connecting the EITC and asset Development

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ThE EarnED InComE Tax CrEDIT: CapITalIzIng on Tax InCEnTIvEs

Conclusion

EitC is a unique tool to both encourage work and preserve income for low-income 

workers with and without disabilities. With the new option of a split refund, the 

vitA site can bring together financial institutions and other community partners to 

start a relationship with the lower income workers with and without disabilities that 

connects use of the credit with the benefits of savings, financial education, and the 

importance of asset building.

1. learn more about the EitC and vitA sites in your community, by visiting the irs 

EitC Central Web site at www.eitc.irs.gov

2. learn more about irs marketing and outreach to individuals with disabilities 

through community partnerships nationwide, by reviewing http://www.irs.gov

using search for “Community network” 

3. review the real Economic impact tour Web site: www.reitour.org

4. find a vitA site to assist you in preparing your tax returns and accessing this tax 

credit by calling: 1-800-829-1040

Why This policy Brief series?

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Contents 

Why This series is a Useful Tool for Individuals

Using this series, eligible individuals and families will be guided to access multiple 

resources that can assist them in building their personal wealth. Each of these briefs 

is designed to be accessible to professionals in the field and to recipients of services 

and benefits. Users are provided with contact information, Web sites, and strategies 

to pursue these benefits.

Why This series is a Useful Tool for Employers 

Employers increasingly face the challenge of retention of talent and human capital. 

Companies can no longer afford to compete only for the highest-level professionals 

and assume the lower-paying positions will fill themselves. the human resource is now 

the investment of principal importance to any company that depends on a range of 

skills for production or delivery of its product or service. As such, providing resources 

that promote greater value and satisfaction to their employees, without incurring 

additional costs, should be a meaningful proposition to any executive or human 

resource professional. this series is designed to either be distributed to a company’s 

employees, or to act as a guide for human resource professionals on how to better 

leverage various incentives on behalf of company employees. 

Why This series is a Useful Tool for the Workforce Development system

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their constituents and customers. by using and distributing this brief, the workforce 

development system can assist its customers in attaining long-term financial stability. 

Also, by diversifying the types of resources available to its customers, the obligation 

placed on any single funding stream will decrease.

Information for this portfolio brief came from:

• national Center on Workforce and disability/Adult (nCWd/A), Website: http://

www.onestops.info/

• michael morris, Jd of the law, health Policy & disability Center, University of 

iowa College of law; the burton blatt institute; and national disability institute, 

Washington, d.C; e-mail address: mmorris@ndi-inc.org

• office of disability Employment Policy at the U.s. department of labor

for additional information on financial Education and Asset development, 

contact:

odEP

1-866-633-7365

1-877-889-5627 (tty)

http://www.dol.gov/odep

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office of disability Employment Policy, U.s. department of labor 1-866-odEP-dol (633-7365) tty: 1-887-889-5627 www.dol.gov/odep

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• institute for Community inclusion at Umass boston

• Center for the study & Advancement of disability Policy

• law, health Policy & disability Center, University of iowa College of law

• national disability institute

• the burton blatt institute, syracuse University

• marc Gold & Associates/Employment for All

• national Association of Workforce boards

• national Conference of state legislatures

• transCen, inc.

ProvidinG nAtionAl lEAdErshiP on disAbility EmPloymEnt

office of disability Employment Policy, U.s. department of labor 1-866-odEP-dol (633-7365) tty: 1-887-889-5627 www.dol.gov/odep

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