Periodic Earned Income Tax Credit (EITC) Payment, Financial Stress and Wellbeing: A Longitudinal Study

Abstract

The Earned Income Tax Credit (EITC) addresses the economic needs of low-income families, but its annual distribution in one lump-sum limits recipients’ ability to handle financial emergencies that arise throughout the year. We examine the relationship between an advanced periodic payment of the EITC and recipients’ wellbeing. We compare the perceived financial stress of recipients receiving a traditional lump-sum payment to a group that received four advanced payments spread throughout the year. Periodic payment recipients experienced significantly lower levels of perceived financial stress. This relationship was partly mediated by less need to borrow money, lower levels of food insecurity, and fewer unpaid bills. Therefore, periodic payments may enhance the positive association between the EITC and the financial wellbeing of families.