Demand for low income tax credit varies widely across country

Though the Earned Income Tax Credit has helped millions of Americans stay out of poverty, the take-up rate among taxpayers varies widely across the country, and even at a county-by-county level.

The Earned Income Tax Credit (EITC) is one of our nation’s most effective anti-poverty policies, bringing 10.1 million families out of poverty in 2012. The EITC is designed to reward work by increasing wages for low-income workers; workers with low incomes can receive up to an additional 40 cents for every dollar they earn. Recognizing the ability of the EITC to ease poverty and incent work, the President recently called for an expansion of the EITC for childless workers in his State of the Union address.

The EITC is only available to low-income workers, and phases-out as taxpayer income increases. The value of the credit is not only based on income, but family structure as well: taxpayers with children receive substantially larger benefits relative to those without. Since these income and demographic characteristics vary across states and counties, there is wide variation in EITC take-up across localities. The remainder of this brief describes this variation in greater detail, using IRS data from 2007.

There is notable variation across counties in EITC take-up. Ranked by share of taxpayers claiming the EITC, the bottom 10 percent of counties have claiming rates of 10.7 percent or lower, while the top 10 percent of counties have claiming rates of 27.1 percent or higher. The median county sees 16.2 percent of taxpayers claiming the EITC.

The size of the average EITC, among those claiming the credit, varies less than take-up rates. Most counties have average credits between $1,500 and $2,500: 10 percent of counties have average credit values of $1,657 or less, while 10 percent of counties have average credit values of $2,236 or more.

The regional variation in the EITC is stark. The counties with the highest share of taxpayers taking up the EITC are overwhelming located in the Southeast. As can be seen in the accompanying map, a large share of counties in Alabama, Georgia, and Mississippi have over half of their taxpayers claiming the EITC. With few exceptions, almost all counties with high rates of EITC take-up are located in the South. Relative to the South, the Northeast and the Midwest have much lower rates of EITC take-up. Moreover, as shown in an accompanying map, average EITC benefit closely follows the pattern for share of taxpayers taking up the credit.