earned income tax credit

The earned income tax credit (EITC) is a targeted subsidy for low-income working families. It was enacted in 1975 as a temporary credit to help low-income workers with children.

The value of the EITC is a fixed percentage of a household’s earned income until the credit reaches its maximum. The EITC stays at its maximum value as a household’s earned income continues to increase, until earnings reach a phaseout threshold, above which the credit falls by a fixed percentage for each additional dollar of income over the phaseout threshold. The EITC is a fully refundable credit.