June 2, 2014

Earned Income Tax Credit boosts Cleveland Central Promise Neighborhood

The people living within the boundaries of the Cleveland Central Promise Neighborhood are $5.7 million more prosperous because of the federal Earned Income Tax Credit (EITC), which helped an estimated 1,900 low-wage working families and individuals in the community make ends meet, according to a new report from Policy Matters Ohio. The report was made possible by the support of the Sisters of Charity Foundation of Cleveland.

“The federal EITC supports the mission of the Promise Initiative,” said Hannah Halbert, report author and researcher with Policy Matters Ohio. “Kids in EITC families that receive larger EITC credits tend to have higher test scores, higher graduations rates, and higher college attendance rates.”

The report analyzed the impact of the federal and state EITCs on the Promise Neighborhood. Tax filers who claimed the federal EITC in the neighborhood got an average credit of $3,001, which will help them afford necessities such as childcare and transportation.

The report found that the Ohio EITC will have a much more limited benefit for the neighborhood. One of the main reasons is that unlike the federal credit, Ohio’s isn’t “refundable,” which allows those qualifying for the EITC to claim a modest refund if the credit exceeds what they owe in taxes. The median gross income of the residents living in the Cleveland Central Promise Neighborhood is barely above the threshold for qualifying for Ohio’s low-income tax credit, which eliminates tax liability for taxpayers with taxable income less than $10,000. Because the Ohio EITC isn’t refundable, many of these families will see no benefit from it. In addition, Ohio’s EITC is capped for those with taxable income over $20,000 and set at only 5 percent of the federal credit. 

“The state credit should be better targeted to reach low-income working families,” said Halbert. “Making the credit refundable, increasing the amount, and dropping the cap would help keep more kids out of poverty.”

The Sisters of Charity Foundation of Cleveland is the lead Promise Neighborhood partner and a ministry of the Sisters of Charity Health System.

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