Boosting the Earned Income Tax Credit for Single Workers Increases After-Bonus Income, Work Rates, and Child Support Payments — and Reduces Severe Poverty
Contact: John Hutchins, MDRC, 212-340-8604, [email protected]
(Washington, DC, September 25, 2018) — MDRC, a nonprofit, nonpartisan education and social policy research firm, released new results today from a demonstration and evaluation of Paycheck Plus, which offers workers without dependent children in New York City and Atlanta an enhanced Earned Income Tax Credit (EITC) worth up to $2,000 per year for three years (four times the value of the current federal EITC for singles). The new report was released at a Capitol Hill briefing sponsored by Tax Credits for Workers and Their Families, a nonpartisan initiative.
Three-year results from a random assignment evaluation of the program in New York City, which is led by the New York City Mayor’s Office for Economic Opportunity and implemented by the Food Bank for New York City and the New York City Human Resources Administration (HRA), include:
Paycheck Plus increased after-bonus earnings (earnings after accounting for taxes and the bonus) and reduced severe poverty. A majority of individuals in the Paycheck Plus group who had earnings in the eligible range applied for and received the bonus. The average bonus paid was about $1,400 in each year. Earnings after the bonus and taxes were 6 percent higher, on average, for the Paycheck Plus group.
Paycheck Plus modestly increased employment rates overall. Positive effects on employment were concentrated among women and the more disadvantaged men in the study. For example, Paycheck Plus increased employment rates for a subgroup of disadvantaged men (those who owed child support and/or had been previously incarcerated) in Year 3 by 5.8 percentage points (or 10 percent).
Paycheck Plus increased child support payments by noncustodial parents (parents who do not have custody of one or more of their children). In Year 3, for example, Paycheck Plus boosted the proportion of noncustodial parents who made at least one child support payment by 7.2 percentage points (or 12 percent).
Paycheck Plus also improved tax-filing rates and led to large increases in the use of free tax preparation at Volunteer Income Tax Assistance sites (participants were encouraged to use these sites to apply for the bonus).
Why Test an Enhanced Earned Income Tax Credit for Workers Without Dependent Children?
The EITC was designed to assist the working poor and helps to counteract decades of stagnant or falling wages for low-income workers. By providing a refundable credit at tax time, the EITC has moved millions of adults and their children out of poverty and out of severe poverty. However, because it is directed largely at workers with dependent children, millions of low-wage single adults, who have faced the same falling wages, receive very little support. In 2017, the EITC for workers without dependent children provided a maximum credit of $510, decreasing to $0 as earnings rise from $8,340 to $15,010. (The maximum annual credit for an adult with two dependent children was $5,616.)
Policymakers on both sides of the aisle have recognized the value of the EITC as a policy that both reduces poverty and rewards work, and they have also promoted the idea of expanding it for adults without dependent children, who are also struggling as wages fail to rise. Paycheck Plus is the first test of that concept.
What Is Paycheck Plus?
The Paycheck Plus demonstration offers up to $2,000 a year over a three-year period to single workers with earnings of up to $30,000 per year, with the maximum payment being made to those with earnings between $6,667 and $18,000. The pilot test in New York City enrolled 6,000 participants (the focus of this report) and the one in Atlanta includes 4,000 — split evenly between those who are eligible to receive the expanded credit and a randomly assigned control group who are not. The New York City sample has been eligible for the enhanced bonus for three years (tax years 2014, 2015, and 2016), and the Atlanta participants received their first bonuses for tax year 2016. The program sought to mirror the process by which filers apply for the federal EITC, although the bonus was not administered by the Internal Revenue Service. Participants needed to apply for each bonus and did not receive it automatically when they filed taxes.
“The findings from the New York City test of Paycheck Plus are encouraging — higher earnings, more work, less severe poverty,” said Gordon Berlin, MDRC President. “The effects for the subgroup of disadvantaged men are particularly promising. For a significant number of workers in this new and changing labor market, the EITC continues to be an important part of the safety net. The findings here show that expanding this benefit can help make work pay again for low-wage workers.”
“The results of our Paycheck Plus demonstration support the idea of expanding the EITC to more meaningfully benefit more low-income workers,” said Matt Klein, Executive Director of the New York City Mayor’s Office for Economic Opportunity. “Too many people who work remain in and near poverty. The EITC is one tool to help, as Paycheck Plus shows for adults without dependent children, and should be increased.”
“The evaluation findings from Paycheck Plus show that an expanded EITC for singles can have a positive effect on earnings,” said Carson Hicks, Deputy Executive Director of the Mayor’s Office for Economic Opportunity. “And testing these types of strategies demonstrates that cities can be an engine for innovation and evidence building.”
“Among the heartening results of the Paycheck Plus demonstration is the increases in child support payments that seem to result from an expanded EITC,” said HRA Administrator Grace Bonilla. “This outcome helps noncustodial parents meet an important financial obligation, reducing their financial stress, and, for some, allowing them to feel more comfortable maintaining a strong relationship with their children. At the same time, it can also provide direct, vital support to their children, suggesting that a more broadly based EITC could have a two-generation impact on poverty in New York City and across the country.”
“These encouraging results from New York City are not the last words from Paycheck Plus,” noted Cynthia Miller, MDRC Senior Fellow and lead author of the report. “We look forward to publishing findings from Paycheck Plus in Atlanta, a city with a lower minimum wage and lower average wages, in 2019.”
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Funding for the demonstration in New York is provided by the New York City Mayor’s Office for Economic Opportunity, the Robin Hood Foundation, the Laura and John Arnold Foundation, the Edna McConnell Clark Foundation, the Chan Zuckerberg Initiative, and the U.S. Department of Health and Human Services’ Office of Child Support Enforcement through a Section 1115 waiver coordinated by the New York State Office of Temporary and Disability Assistance. Partners also include the New York City Human Resources Administration, the Food Bank for New York City, and The City University of New York.
Funding for the demonstration in Atlanta is provided by the Annie E. Casey Foundation, the W.K. Kellogg Foundation, the Kresge Foundation, the Ford Foundation, the JPB Foundation, the Chan Zuckerberg Initiative, the U.S. Department of Health and Human Services’ Office of Planning, Research, and Evaluation, the U.S. Department of Labor, and the Lifepath Project. Partners include United Way of Greater Atlanta.