Measuring Take-up of the California EITC with State Administrative Data

Abstract

The Earned Income Tax Credit (EITC) is the largest cash-based means-tested transfer program in the United States. In 2021, 31 million households received $64 billion from the federal EITC. Twenty-eight states also offer eligible taxpayers a supplement to the federal program. An estimated one-fifth of eligible households fail to claim the federal credit, but little is known about take-up of these state programs. We use administrative data from California on the population of Supplemental Nutrition Assistance Program (SNAP) recipients linked to state tax records to estimate the number of households who are eligible for California's supplement to the federal EITC (CalEITC) but do not claim it. We find that over 400,000 households who received SNAP benefits and who were eligible for the state EITC in 2017 did not receive the credit. This includes approximately 40,000 eligible households who claimed the federal EITC but not the state credit; nearly 98,000 eligible households who filed a state tax return but did not claim the state or federal credit; and roughly 270,000 eligible households who did not file a state tax return. The corresponding take-up rate for the CalEITC among eligible SNAP-enrolled households was 54%. Altogether, these households left a total of $71 million in state EITC funds on the table. If received, these credits would have increased incomes among these households by 2.7% and increased total state EITC outlays by 20%.

Keywords: Administrative Data; California Earned Income Tax Credit; H240; H710; I380; Social Safety Net; Take-up.

Figure 1:

Federal and California EITC schedules for a single-parent family with two children, tax year 2017 Notes. Figure 1 illustrates the federal (blue) and state (gold) EITC schedules for a head of household with two children. The gray line illustrates the combined value of the EITC for a filer who claims both credits. The dotted line denotes the filing threshold for a head of household in tax year 2017, which was $18,000; families with incomes below this threshold are generally not required to file returns.

Figure 2:

Distribution of eligible non-claimants by estimated credit amount and earned income Notes. Figure 2 plots the frequency of eligible non-claiming tax units by estimated credit amount and earned income. Panels A and C presents counts for units with zero qualifying children. Panel B and D present counts for units with one or more qualifying children. Panels B and D have bin widths of $1,000. Panels A and C have bins widths of $40 and $400, respectively.