Earned Income Tax Credit#
The Earned Income Tax Credit (EITC) is a refundable tax credit that phases in and out with earned income. It is more generous for families with children, and it excludes filers with a certain amount of investment income. Filers without children are only eligible if they are between 25 and 64 years of age.
from policyengine_us import IndividualSim
import pandas as pd
import plotly.express as px
LIGHT_GRAY = "#F5F5F5"
GRAY = "#BDBDBD"
BLUE = "#5091cc"
LIGHT_BLUE = "lightblue"
DARK_BLUE = "darkblue"
COLOR_MAP = {"0": GRAY, "1": LIGHT_BLUE, "2": BLUE, "3": DARK_BLUE}
def make_eitc(adults, children):
sim = IndividualSim(year=2022)
sim.add_person(name="head", age=25)
members = ["head"]
if adults == 2:
sim.add_person(name="spouse")
members += ["spouse"]
for i in range(children):
child = "child{}".format(i)
sim.add_person(name=child, age=6)
members += [child]
sim.add_tax_unit(name="tax_unit", members=members)
sim.add_household(name="household", members=members)
sim.vary("employment_income", max=60_000, step=100)
return pd.DataFrame(
dict(
employment_income=sim.calc("employment_income")[0],
eitc=sim.calc("eitc")[0].round(),
mtr=-sim.deriv("eitc", "employment_income", wrt_target="head"),
adults=adults,
children=str(children),
)
)
# Make a table of EITC amounts for different numbers of adults and children.
l = []
for adults in range(1, 3):
for children in range(0, 4):
l.append(make_eitc(adults, children))
df = pd.concat(l)
LABELS = dict(
employment_income="Employment income",
income_source="Income source",
eitc="Earned income tax credit",
mtr="EITC marginal tax rate",
children="Children",
adults="Adults",
)
fig = px.line(
df,
"employment_income",
"eitc",
color="children",
animation_frame="adults",
labels=LABELS,
title="Earned income tax credit, 2022",
color_discrete_map=COLOR_MAP,
)
fig.update_layout(
xaxis_tickformat="$,",
yaxis_tickformat="$,",
plot_bgcolor="white",
xaxis_gridcolor=LIGHT_GRAY,
yaxis_gridcolor=LIGHT_GRAY,
)
fig.show()
The EITC has marginal tax rates ranging from -45% to +21%, depending on the household structure and income.
fig = px.line(
df,
"employment_income",
"mtr",
color="children",
animation_frame="adults",
labels=LABELS,
title="Earned income tax credit marginal tax rate, 2022",
color_discrete_map=COLOR_MAP,
)
fig.update_layout(
xaxis_tickformat="$,",
yaxis_tickformat=".0%",
plot_bgcolor="white",
xaxis_gridcolor=LIGHT_GRAY,
yaxis_gridcolor=LIGHT_GRAY,
)
fig.show()