DC’s Earned Income Tax Credit Supports Working Families Across the District

Key Findings:

  • The DC Earned Income Tax credit provides tax relief and some refunds to many working families across the District.
  • In 2005, the DC EITC provided $30 million in tax relief to 46,300 working families.
  • The Mayor’s proposed expansion of the DC EITC will provide $39 million in tax relief ‘ increasing average benefits nearly $200 over the 2005 level.
  • Increasing numbers of federal EITC recipients are applying for the DC EITC, suggesting that DC EITC outreach efforts are succeeding.
  • However, District families are still losing $17 million to $25 million in unclaimed federal and DC EITC benefits.

The District’s Earned Income Tax Credit (DC EITC) is a critical tool to support working poor families. The EITC boosts take-home pay by providing tax relief and, in many cases, refunds to low-income workers, especially those with children. The DC EITC helps to reduce poverty, supplement the income of low-wage workers, and lower the taxes of low- and moderate-income families.

To build on the strengths of the federal EITC, DC joins 22 states in offering a state-level EITC. DC enacted its EITC in 2000. The District expanded the credit to 35 percent of the federal EITC benefit in 2005, making it one of the most generous state-level EITCs in the nation. A proposal in the FY 2009 budget would increase the DC EITC even further ‘ to 40 percent of the federal credit. Recent data show that the District’s EITC assists a substantial number of working families and individuals:

  • Some 46,300 DC households received the DC EITC for tax year 2005. This represents one in six DC households.
  • DC residents received $30 million in DC EITC benefits in 2005, with an average benefit of $652 per household. When combined with the federal EITC, working DC households received nearly $120 million in EITC benefits, with average benefits of $2,400 per household.
  • If approved by the Council, the proposed expansion of the DC EITC will bring the amount received by DC working families to $39 million, with an average benefit of $865 per household. When adjusted for inflation, this equals an average benefit increase of nearly $200 from the 2005 level.
  • The EITC helps families throughout the District but receipt is particularly concentrated in some neighborhoods. For example, more than one-third of all tax filers living east of the Anacostia River claim the EITC. Overall, 40 percent of EITC recipients live East of the River.In addition to measuring the benefits of the federal and District EITC, this report also examines the participation rate, or the share of eligible residents that claim each credit.
  • In 2004, some 92 percent of those who benefited from the federal EITC also benefited from the DC EITC. This represents an improvement from 2002, when less than 80 percent of District residents that claimed the federal EITC also claimed the DC EITC. This is a sign that awareness of the DC credit has grown.
  • At the same time, some 7,000 to 11,000 DC residents do not claim the federal EITC, even though they are eligible for the credit. This means that they cannot claim the DC EITC, either. The amount of federal EITC dollars unclaimed by DC residents in 2004 is estimated to range between $12.4 million and $18.3 million. The amount of unclaimed DC EITC dollars in 2005 is estimated to range between $4.5 million and $6.6 million.
  • The number of DC households claiming the federal EITC is falling. From 2002 to 2005, the number of federal EITC recipients in DC decreased by nearly 3,000 households. It is not clear if this reflects fewer eligible households or reduced participation among eligible households, but it does emphasize the need for ongoing outreach.
  • Moreover, there appears to be substantial variation in DC EITC participation across the city, even among those who claim the federal credit ‘ most of whom should be eligible for the DC credit. In areas with large numbers of federal EITC recipients, most federal EITC filers also claimed the DC EITC. For example, in areas east of the Anacostia River, nearly all federal EITC recipients also claim the DC EITC.
  • In zip codes where fewer than 500 people applied for the federal EITC, a much smaller share of federal credit recipients also claimed the DC EITC. For example, in three zip codes located primarily in Wards 2 and 3, where fewer than three percent of federal EITC beneficiaries live, 61 percent or fewer of federal EITC recipients claimed the DC EITC.

Given the tremendous benefits provided by the Earned Income Tax Credit ‘ including the proposed expansion of the DC EITC ‘ outreach is important to help ensure that all eligible families and individuals claim the credit. There is a substantial EITC outreach effort in the District, led by the DC EITC Campaign, a citywide, multi-sector collaborative that provides marketing, outreach, and free tax preparation assistance to low-income DC residents. The campaign relies primarily on private funds and volunteer efforts, but it also receives public funding from the DC government. These data indicate that DC EITC outreach efforts have been successful, especially in areas with large numbers of federal EITC recipients.

Outreach efforts should continue to target areas where many federal EITC recipients are concentrated, and they should focus on raising awareness of the federal EITC. This is important because the number of DC residents claiming the federal EITC has fallen, and the federal credit is a prerequisite to claiming the DC EITC. Additionally, groups may want to consider extending their outreach campaigns to areas with fewer numbers of federal EITC recipients, where DC EITC participation rates are lower. Because continued development and gentrification in the District may result in population shifts over time, it will be important to update this analysis in future years to track participation and better target outreach.

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