Earned-Income Tax Credit: Window Is Closing Fast on Equity for Workers 65+

Last year, policymakers temporarily expanded several tax cuts to support millions of Americans raising children, taking care of their dependent loved ones, and working in some of the lowest paying but essential jobs. Since then, we have seen how this real-life experiment in tax policy moved a needle on poverty in a remarkable way.

The expansions, however, expired at the end of 2021. Yet if policymakers act in time for the next tax filing season, they still have a chance to revive these consequential policies, maintaining their continuity. All of them are important, but one has direct implications for older workers: the earned income tax credit (EITC), one of the nation’s most effective anti-poverty programs.

Good Policy, But an Unlevel Playing Field

Every year the EITC helps millions earn their way out of poverty, encouraging them to find a job. But expiration of the 2021 amendments at the end of last year terminated EITC eligibility for an estimated 11 million childless workers with incomes below approximately $21,000 ($27,000 for couples). Among those affected were nearly 2.3 million Latino adults, 1.6 million Black individuals, and 418,000 Asian Americans. For over 6 million additional workers with income under $16,480 ($22,610 for couples), the credit did not disappear completely, but its amounts decreased to a fraction of last year’s.

The expiration of the 2021 expansions hit two age groups particularly hard. One of the innovative features of the legislation was the removal of outdated age-based EITC restriction, which made taxpayers younger than 25 and older than 64 without dependent children ineligible for the EITC. Today the restriction is back in force. Because of it, ineligible working-poor adults effectively have to accept employment for an after-tax pay that is lower than that of a worker who falls into the 25-64 age bracket. The age restriction made over two million 65+ workers ineligible, among them an estimated 187,000 Latino, 204,000 Black, and 69,000 Asian Americans.

The age restriction does not reflect changing socioeconomic realities and today’s policy landscape, such as Social Security’s rising full-retirement age (nearly 67 for a typical worker retiring today), declining overall retirement security, and historically high inflation. Effectively, it shuts the older working poor out of a keystone federal antipoverty program. It is counterproductive in today’s context, as it discourages those who can and need to stay or go back to work from doing so at a time when the workforce is aging and older workers can help fill the vacancies.

Many workers 65 and over are in the labor force because they do not have enough retirement income. According to a recent study, almost half of workers born between 1946 and 1960 expect to work past age 70 or do not plan to retire at all. Eighty-two percent of them cite financial reasons for doing so. Indeed, workers age 65+ have represented the fastest-growing segment of the labor force in recent decades. At a bare minimum, these workers deserve the same support as their younger counterparts, for many depend on the income they earn.

Reinstating the 2021 EITC age policy helps employers as well. Keeping the age restriction out of the equation would help alleviate the current severe labor shortage and increase available labor supply longer term.

An Urgent Matter

To remain effective, the EITC should align with 21^st century needs and realities. Policymakers should retroactively repeal age restrictions in time for the next tax filing season and thus maintain continuity of this proven policy tool. Such a retroactive extension is the best solution given the circumstances, and certainly not unprecedented. Moreover, the annual cost of removing the age restriction for older adults is fiscally responsible, costing a modest $1.8 billion on a stand-alone basis. The extension would also trigger additional benefits from state-level credits, multiplying the effect of every federal dollar.

Simply put, policymakers have a chance to retain the successes of policies achieved in 2021. But the window of opportunity is closing fast.