Introduction

The Earned Income Tax Credit (EITC) is a large and critically important anti-poverty program that encourages and rewards work, yet contains one significant flaw – the single, lump sum nature of the payment. This annual disbursement is a challenge for many families, who must reconcile the once-a year payment with their week-to-week needs.

The positive effect of the EITC is lessened by high interest rates incurred by many recipients in the months prior to receiving their refund. Many low-income families are extremely dependent on their tax refund, and the EITC along with other tax credits make up a large portion of their annual income. A single mother with two children who makes $15,000 per year receives over $7,200 from the state and federal EITC each spring. This comprises nearly half her annual wage earnings. Maintaining household spending discipline for the subsequent year is quite difficult, and many households find themselves in a precarious financial position a few months after receiving their tax refund. This challenge is exacerbated by the factthat many low-income workers are employed seasonally, and have to manage through significant periods each year with no wage income.

To address this shortcoming locally, Rochester residents should be given the opportunity (and an incentive) to save a portion of their annual EITC, which would then be disbursed monthly throughout the year. Doing so would transition the EITC from a once-a-year lump sum payment to a type of wage supplement, giving families a steadier stream of income and allowing them to better manage their household finances.