Since its expansion in 1993, the federal earned income tax credit (EITC) has helped millions of low-income working Americans. In 2013, the credit helped lift more than six million Americans (the majority of them children) out of poverty, according to the Center on Budget and Policy Priorities.
But one drawback of the EITC, as successful as it is, is that families receive it in one lump sum at tax time. This means that families don’t have support throughout the year and often rack up debts in anticipation of receiving the EITC refund. According to the Brookings Institution, as many as 95 percent of households receiving the EITC have some form of debt. The Center for Economic Progress(CEP), a Chicago-based non-profit, says that more than 80 percent of families use a portion of their EITC refund to pay down bills and debt accumulated over the past year.
To improve the financial stability of families receiving the EITC, the CEP launched an EITC Pilot project in 2014 – with support from the University of Illinois at Urbana-Champaign, Advent Financial, and the Office of Chicago Mayor Rahm Emanuel – that allowed 343 workers to get half their anticipated credit in four payments, spread out from May to December. To compare the impacts of this experiment, the CEP also created a “control group” of 164 other workers who got their EITC under the current system as a single lump-sum.