New Findings Show That Boosting the Earned Income Tax Credit for Single Workers Increases After-Bonus Income, Tax Filing, and Child Support Payments

Contacts: John Hutchins, MDRC, 212-340-8604, [email protected]

(New York, September 14, 2017) — MDRC, a nonprofit, nonpartisan education and social policy research firm, released interim 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 EITC for singles). Results from a random assignment evaluation of the first two years of the program in New York City, which is led by the New York City Mayor’s Office for Economic Opportunity, include:

  • Paycheck Plus has increased after-bonus income and work rates. 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. The program led to a small increase in employment in Year 2, with larger effects among women than among men. Despite concerns about unintended negative effects, there is no evidence that the program reduced work effort or earnings among those who had higher earnings when they enrolled.

  • Paycheck Plus increased child support payments by noncustodial parents (parents who do not have custody of their children). Paycheck Plus recipients paid an average of $54 per month more in child support than individuals in the control group — a 39 percent increase.

  • Paycheck Plus also increased tax-filing rates, 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), and moderately boosted receipt of the modest federal EITC.

Why Test an Enhanced Earned Income Tax Credit for Workers Without Dependent Children?

The EITC, which is predicated on work effort, is one of the most successful antipoverty programs in the United States, raising six million Americans out of poverty each year, including three million children. Workers in cities, small towns, and rural areas all benefit from the EITC. However, because it is directed largely at workers with dependent children, millions of low-wage single adults (some of whom are noncustodial parents) receive very little support. In 2016, the EITC for workers without dependent children provided a maximum credit of $506, decreasing to $0 as earnings rise from $8,270 to $14,880. (The maximum annual credit for an adult with two dependent children was $5,572.)

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 two years (tax years 2014 and 2015), and the Atlanta participants are currently receiving 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 fact that single people working in low-wage jobs are treated differently by the current Earned Income Tax Credit from those with children raises questions of equity,” said Gordon Berlin, MDRC President. “These early findings from Paycheck Plus show that an expanded tax credit can encourage work and increase incomes, just as the EITC has already done for single mothers. Although such a credit would not fully make up for decades of falling wages, it would be a start. Future findings from Atlanta, a different labor market, will provide further information for policymakers.”

“Paycheck Plus is helping us learn what could happen if an effective antipoverty policy is expanded to benefit more low-income workers,” said Matt Klein, Executive Director of the New York City Mayor’s Office for Economic Opportunity. “In our changing labor market, too many people who work remain in and near poverty. We are showing how an Earned Income Tax Credit that provides more robust support to single adults without dependent children could be part of addressing this profound problem.”

What’s Next for Paycheck Plus?

In 2017, Paycheck Plus is in its last year of making payouts in New York, providing a test in a labor market with a high minimum wage. In Atlanta, a city with a lower minimum wage and lower average wages, participants are receiving their first payments after a robust outreach and marketing effort. Interim findings from Atlanta will be published in 2018. The project is also fielding surveys in both cities that will capture important effects on income, poverty, and well-being. The final reports, scheduled for 2018 for New York and 2020 for Atlanta, will use data from the surveys and longer-term data on taxes and earnings to capture the full effects of Paycheck Plus.

The complete report, Expanding the Earned Income Tax Credit for Workers Without Dependent Children: Interim Findings from the Paycheck Plus Demonstration in New York City, by Cynthia Miller, Lawrence F. Katz, Gilda Azurdia, Adam Isen, and Caroline Schultz, is available on MDRC’s website. 

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Funding for the demonstration in New York is provided by New York City Mayor’s Office for Economic Opportunity, the Robin Hood Foundation, the Laura and John Arnold Foundation, the Edna McConnell Clark Foundation, and the U.S. Department of Health and Human Services through a Section 1115 waiver coordinated by the New York State Office of Temporary and Disability Assistance. 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 U.S. Department of Health and Human Services, the U.S. Department of Labor, and the Lifepath Project. Partners also include Food Bank for New York City, United Way of Greater Atlanta, The City University of New York, and the New York City Human Resources Administration.