New York’s Paycheck Plus Pilot Can Inform EITC Expansion Policies

By Helly Lee

MDRC has released a brief providing more details about their pilot to test an expanded Earned Income Tax credit (EITC) in New York.  The Paycheck Plus pilot tests a new, EITC-like earnings supplement for low-income workers.   Targeting those earning between $6,667 and $18,000, the pilot recruited over 6,000 individuals, half of whom were randomly selected to receive a supplement of up to $2,000 a year for three years (for earnings from tax years 2014, 2015, and 2016).  The other half of the study participants form a control group that is not eligible for the supplement.

The Paycheck Plus pilot sought to include participants with significant financial challenges, including non-custodial parents, those who were formerly incarcerated, and individuals with little or no earnings.  The supplement will only be available to those participants in the experiment group who work and file taxes.  A select subset of individuals eligible for the Paycheck Plus supplement will also be given referrals to employment services.  These efforts will assess whether combining the supplement with assistance produces larger effects.  The pilot project will be implemented through 2017.

Pilots like Paycheck Plus can help inform future policymaking by showing the impact of enhanced EITC proposals for low-wage earners.  The pilots provide a unique opportunity to analyze the effect a policy can have on a specific population and gather best practices that may be scaled up to a national level. 

Federal policymakers are recognizing more and more the importance of expanding the EITC to better serve low-wage workers.  Recently, President Obama proposed expanding and strengthening the EITC for childless adults, including modifying the age limits. In addition, three congressional proposals (the Working Families Tax Relief Act of 2013; the Earned Income Tax Credit Improvement and Simplification Act of 2013; and the EITC for Childless Workers Act of 2014) have been introduced to strengthen the EITC for childless workers.   These proposals require Congressional action in future tax policy debates, which can be informed by lessons learned from local pilots.

The Earned Income Tax Credit (EITC) is known to have long-lasting benefits for low-wage workers and their families.  As we’ve written before, the EITC is one of the nation’s largest and most effective anti-poverty programs.  In 2012, the EITC lifted 6.5 million people, including 3.3 million children, out of poverty and made work pay for low-earning parents.  However, the EITC offers less help for adults without dependent children, including non-custodial parents.  Their average credit is about $270—less than one-tenth of the average credit for filers with children.  An estimated 5.8 million workers under 25 and over 64 are ineligible simply because of their age.

Childless adult workers are the only group taxed into poverty.  In 2012, federal income and payroll taxes pushed 1.2 million childless workers into poverty and another 5.8 million deeper into poverty.  Expanding the EITC for this population will reduce poverty among childless workers and incentivize work.  We look forward to learning from Paycheck Plus as it is implemented, and we will continue to advocate for national policies that better support low-wage workers.