What is the main purpose of the Earned Income Tax Credit (EITC)?

The Earned Income Tax Credit (EITC) is designed specifically to provide financial assistance and tax relief to low- to moderate-income working individuals and families. The primary aim is to reduce poverty among working people and encourage them to remain in the workforce. By providing a tax credit that can significantly increase a taxpayer's refund, the EITC aims to incentivize employment while simultaneously aiding those who are working but may still be struggling financially.

The EITC works by allowing eligible taxpayers to reduce their tax liability based on the amount of earned income they report. Because the credit is refundable, it can result in a refund greater than the actual tax owed, effectively increasing the disposable income of qualifying individuals. This plays an important role in fostering economic stability and encouraging work among lower-income groups, which is fundamentally different from options such as providing breaks to high earners or funding scholarships. The focus on low-to-moderate income workers makes the EITC a critical tool for reducing income inequality and supporting those in the workforce.