Earned income tax credit helps struggling families

By Judy Stoffel

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More than 14,000 families in the United Way of East Central Iowa six-county service area (Benton, Cedar, Iowa, Jones, Linn and Washington counties) are not earning enough money to meet their basic expenses.

Families are making tough choices. They are forced to decide if they will pay the rent or mortgage or purchase food for their family.

United Way is partnering with local agencies and other community partners to help these families become financially stable.

What income is needed for families to become financially stable? Based on the estimated cost of living in the Cedar Rapids metropolitan area, a

single parent with two children needs to earn nearly $21 per hour to meet their family's basic expenses. Basic expenses include items such as food, housing, transportation, child care and health care.

With the average wage in the Cedar Rapids metropolitan area at $15.69, United Way is partnering with Kirkwood Community College and other social service agencies to help low-income individuals pursue education and training in careers that provide wages that can support families in becoming self-sufficient.

The Earned Income Tax Credit (EITC) is another effective strategy to help families literally work their way out of poverty. The state of Iowa offers a state income tax credit, set at 7 percent of the federal credit. The state EITC is refundable, which means if the tax credit exceeds the taxpayer's income tax liability, the excess goes to the taxpayer as a direct payment.

In the 2010 tax year, 207,245 Iowans claimed the EITC. The average EITC claim returned $1,999 to families. That amount can have a significant impact on a family's ability to manage their expenses.

Unlike many public benefits, the EITC is structured to phase out over time. Families receive a reduced amount of EITC as they increase their income. This is helpful to families who are no longer eligible for public benefits and are not yet earning a wage sufficient to meet their basic expenses.

The EITC encourages and rewards work, increases economic activity and reduces poverty among families with children.

The Iowa Legislature has the opportunity to put hundreds more dollars in the hands of Iowans most in need. Senate File 2161, passed by the Iowa Senate, increases Iowa's EITC from the current 7 percent of the federal credit amount to 20 percent of the federal amount. The increase is phased in over three years.

If passed by the Iowa House and signed by the governor, the EITC would provide a significant boost to thousands of working families.

Judy Stoffel is Community Building Manager for the United Way of East Central Iowa. Comments: jstoffel@uweci.org