The federal Earned Income Tax Credit (EITC) program was introduced in 1975 and experienced massive expansions in the early 1990s. The program is built on the idea that taxes paid by wealthier taxpayers can be redistributed to impoverished households through tax transfers proportional to earnings, resulting in a negative tax (or tax credit) for those below a certain income line. With the fundamental transformation of the traditional welfare system, and the repeal of the Aid to Families with Dependent Children program, the EITC program presents a viable solution to keep people off the welfare rolls by creating incentives to become or remain employed. The EITC program rewards those with a yearly income under roughly $40,000 with a lump sum of tax credit per annum, intended to supplement asset creation and ideally ultimately lift people out of poverty.

As the EITC is a financial relief measure that millions of Americans rely on, the EITC program has actually led to the creation of an industry around tailoring products to the needs of EITC recipients. Paid tax services have now started to target low-income filers and, although it is illegal to demand a percentage of the received tax credit, the tax preparation fee spent to receive the credit is significant and dramatically reduces its financial effectiveness. In response, the Internal Revenue Service and non-profit organizations have developed volunteer-based tax filing services that aim to reduce or eliminate these preparation fees.


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