THE ROLE OF EARNED INCOME TAX CREDIT IN THE BUDGETS OF LOW-INCOME FAMILIES Ruby Mendenhall, Kathryn Edin, Susan Crowley, Jennifer Sykes, Laura Tach, Katrin Kriz, and Jeffrey R. Kling* February 2012 Accepted for publication by Social Service Review on January 31, 2012 Abstract The annual receipt of large tax refunds, primarily due to the Earned Income Tax Credit (EITC), provides families with unusual budget opportunities to pay old bills and build assets. In 2007, short surveys were conducted, followed by in-depth interviews six months later with 194 African-American, Latino, and White parents who received EITC refunds of at least $1,000. The majority of families (57 percent) planned to allocate a considerable portion of their refund to savings and 39 percent accomplished their goal. Paying bills and debt was another important category as almost three-quarters (72 percent) of our sample planned to use (and 84 percent did use) some of the refund in this area. Families’ planned allocations were often readjusted due to emergencies, debt, and bills. Despite setbacks, many recipients have significant asset accumulation goals, which they say are fueled by the expectation of ongoing annual tax refunds. Key Words: Earned Income Tax Credit, budgets, asset accumulation * Mendenhall, University of Illinois, Champaign/Urbana; Edin, Crowley, Sykes, and Tach, Harvard University; Kriz, Emmanuel College; Kling, Congressional Budget Office and National Bureau of Economic Research. The views expressed in this paper are those of the authors and should not be interpreted as those of the Congressional Budget Office. The authors thank Sarah Halpern-Meekin, Luke Shafer and Sara Sternberg-Green for their helpful comments, and the Ford Foundation and the National Center for Institutional Diversity at the University of Michigan for financial support.