Making Work Pay Even More for DC Residents

The Numbers

For District residents in low-wage jobs, making work pay is important. We live in an expensive city, where $8.25 or even $11.50 per hour doesn’t go very far in paying for housing, transportation, food, and other necessities. That’s why DC gives an incentive to working residents through the Earned Income Tax Credit (EITC), which eases taxes for low-income workers. But right now the credit provides very little to a big group of workers: singles without children.

The DC Tax Revision Commission (DCFPI) recognized this gap and recently endorsed an expanded EITC that increases benefits to low-wage workers without children, a group which is ineligible for many other public benefits. DCFPI enthusiastically supports this recommendation. We hope that Mayor Gray and the DC Council will fund this important tax credit in the upcoming budget.

Making the EITC work for childless households will provide a boost to the pay of these residents, as well as to our local economy, because most of these dollars will go right back into local businesses.

Little Safety Net for Singles

Over one-fourth of DC families who lived in poverty in 2012 had no children, making them a significant portion of the poorest residents. Yet the District’s safety net and income tax system offers fairly little assistance to them. Low-income childless workers are ineligible for cash assistance like TANF (Temporary Assistance for Needy Families) and can get just $195 a month in food stamps. And the EITC, one of the best tools to lift families above poverty, provides very little benefit to singles.

The fact that singles without kids are largely excluded from assistance means that singles working at a low-wage job get much less to make ends meet than low-wage workers with children. But if properly designed the EITC could lift thousands of single earners out of poverty by incentivizing work and supplementing the wages of those who need it most.

EITC 101: How the District’s Credit Works

The District offers an EITC that reduces DC income taxes, much like the federal EITC that applies to the federal income tax. The credit is refundable, meaning that if a worker’s EITC benefit exceeds the amount of taxes owed, the excess is given as a tax refund. DC’s EITC is equal to 40 percent of the federal credit, making it the second largest state-level EITC among the 21 states that offer an EITC.

Very low-income households receive an EITC equal to a percentage of their income, so that the credit grows as these households earn more. As income increases further, households reach a range of incomes in which they can claim the maximum EITC benefit. Beyond the maximum credit income range the credit slowly phases out.

The District credit, like the federal credit, varies based on the number of children living in the household. Households with no children receive the smallest credit, while households with three or more children receive the most. As Figure 1 illustrates, the District's credit for childless adults is small and claimable by only a very limited group of single filers without children. For 2013 a single person without children can receive a maximum credit of $195, compared to a single person with one child who can receive a maximum credit of $1,300.

Making Work Pay for Childless Workers

The District’s EITC is effective at providing income tax relief for very low-income families with children, but fairly limited in its effect for childless singles. For example, a single parent with one child making the new minimum wage of $11.50 per hour and working 30 hours a week can receive the maximum EITC of $1,300. A childless single with the same amount of income – about $17,250 a year – would not be eligible for any EITC benefit at all and would instead owe DC income taxes of $500.

A recent proposal endorsed by the DC Tax Revision Commission would change the DC EITC’s benefit level and income eligibility for childless singles, while still maintaining the benefit for families with children at 40 percent of the federal credit. The commission recommended raising the credit to about $500 for a single worker earning between $6,400 and $16,800, which means someone working part-time to almost full-time at minimum wage. The credit would then start to phase out completely at about $23,000. This would significantly increase the number of singles without children who could claim the credit and provide more relief to childless workers at the minimum wage. For example, the minimum wage worker who earns $17,250 and owes $500 in taxes currently would have an EITC of $450 and end up owing only $50. That’s a 90 percent reduction in income taxes. Figure 2 shows the proposal’s EITC benefits at different level of income.

The tax commission’s EITC proposal would provide tax relief to a substantial number of low-wage workers who get little work support from other sources. If the mayor and DC Council adopt the proposal, DC would be the first state to create an EITC for childless adults that goes beyond the federal credit. As with the recent passage of the $11.50 minimum wage, the District would remain a national leader in making work pay for all its residents.

The DC Fiscal Policy Institute conducts research and public education on budget and tax issues in the District of Columbia, with a particular emphasis on issues that affect low- and moderate-income residents. By preparing timely analyses that are used by policy makers, the media, and the public, DCFPI seeks to inform public debates on budget and tax issues and to ensure that the needs of lower-income residents are considered in those debates.

DCFPI was established in 2001 by the Center on Budget and Policy Priorities, one of the nation’s premier policy organizations working on federal and state issues that affect low- and moderate-income residents. DCFPI is a member of the State Fiscal Analysis Initiative, a network of state-level fiscal policy organizations.