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The Earned Income Tax Credit and Reported Self-Employment Income

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  • LaLumia, Sara

Abstract

The EITC subsidizes earnings from both wages and self–employment. This paper uses tax return data to investigate how the EITC affects the reporting of self–employment income to the IRS. A difference–in–difference strategy is used, considering three EITC expansions and comparing filers with and without children. Expansions are predicted to increase the reporting of self–employment income in the phase–in region and to reduce it in the phase–out region. Among the lowest–income filers, the 1994 expansion is associated with a significant increase in the probability of reporting positive self–employment income, equal to 3.2 percentage points for unmarried filers and 4.1 percentage points for married filers.

Suggested Citation

  • LaLumia, Sara, 2009. "The Earned Income Tax Credit and Reported Self-Employment Income," National Tax Journal, National Tax Association;National Tax Journal, vol. 62(2), pages 191-217, June.
    • Handle: RePEc:ntj:journl:v:62:y:2009:i:2:p:191-217
    DOI: 10.17310/ntj.2009.2.01
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    Cited by:

    1. Florian Buhlmann & Benjamin Elsner & Andreas Peichl, 2018. "Tax refunds and income manipulation: evidence from the EITC," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(6), pages 1490-1518, December.
    2. Herget, Anna & Riphahn, Regina T., 2024. "Phasing Out Payroll Tax Subsidies," IZA Discussion Papers 17587, Institute of Labor Economics (IZA).
    3. Erik Hurst & Geng Li & Benjamin Pugsley, 2014. "Are Household Surveys Like Tax Forms? Evidence from Income Underreporting of the Self-Employed," The Review of Economics and Statistics, MIT Press, vol. 96(1), pages 19-33, March.
    4. Emmanuel Saez, 2010. "Do Taxpayers Bunch at Kink Points?," American Economic Journal: Economic Policy, American Economic Association, vol. 2(3), pages 180-212, August.
    5. Bergolo, M. & Cruces, G., 2021. "The anatomy of behavioral responses to social assistance when informal employment is high," Journal of Public Economics, Elsevier, vol. 193(C).
    6. Lim, Katherine & Michelmore, Katherine, 2018. "The EITC and self-employment among married mothers," Labour Economics, Elsevier, vol. 55(C), pages 98-115.
    7. Gunter, Samara, 2013. "State Earned Income Tax Credits and Participation in Regular and Informal Work," National Tax Journal, National Tax Association;National Tax Journal, vol. 66(1), pages 33-62, March.
    8. Gunter, Samara, 2013. "State Earned Income Tax Credits and Participation in Regular and Informal Work," National Tax Journal, National Tax Association;National Tax Journal, vol. 66(1), pages 33-62, March.
    9. Anna Herget & Regina T. Riphahn, 2024. "Phasing Out Payroll Tax Subsidies," CESifo Working Paper Series 11605, CESifo.
    10. Elira Kuka, 2014. "EITC and the Self-employed," Public Finance Review, , vol. 42(6), pages 691-719, November.
    11. Jacob Goldin & Elaine Maag & Katherine Michelmore, 2021. "Estimating the Net Fiscal Cost of a Child Tax Credit Expansion," NBER Chapters, in: Tax Policy and the Economy, Volume 36, pages 159-195, National Bureau of Economic Research, Inc.
    12. Singleton, Perry, 2011. "The Effect of Taxes on Taxable Earnings: Evidence From the 2001 and Related U.S. Federal Tax Acts," National Tax Journal, National Tax Association;National Tax Journal, vol. 64(2), pages 323-351, June.
    13. Margaret Katherine McKeehan, 2018. "The EITC and the labor supply of adult dependents: direct effects and family income effects," Review of Economics of the Household, Springer, vol. 16(3), pages 791-807, September.
    14. Julie Shi, 2016. "Income Responses to Health Insurance Subsidies: Evidence from Massachusetts," American Journal of Health Economics, MIT Press, vol. 2(1), pages 96-124, January.
    15. repec:pri:crcwel:wp11-03-ff is not listed on IDEAS
    16. DeBacker, Jason & Heim, Bradley T. & Ramnath, Shanthi P. & Ross, Justin M., 2019. "The impact of state taxes on pass-through businesses: Evidence from the 2012 Kansas income tax reform," Journal of Public Economics, Elsevier, vol. 174(C), pages 53-75.

    More about this item

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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