Senator Sherrod Brown Turns to EITC to Help Lower-Income Workers Avoid Costly Payday Loans

By Lauren Pescatore

U.S. Senator Sherrod Brown (D-OH) outlined a new plan Wednesday that would allow eligible lower-income workers to access a portion of their Earned Income Tax Credit (EITC) in advance, as an alternative to more costly lending options. The “Early Refund EITC” would provide zero-interest short-term cash advances to workers – many of whom live paycheck to paycheck – to help cover the cost of monthly bills and promote financial stability throughout the year.

The EITC has typically been paid out as a lump sum at tax time. In order to receive the Early Refund EITC, workers would need to enroll in the program through their employers at mid-year and request an advance payment.

Allowing advanced access to a portion of the credit has been found to reduce financial stress among recipients, according to a pilot program currently underway in Chicago. Advance EITC payments would also help lower-income workers avoid turning to costly payday loans and other predatory lending options, which typically carry annual interest rates of 200-500 percent. The size of the Early Refund EITC would be capped at $500 and deducted from the lump sum received at tax time.

“Rewarding Americans for hard work and providing them greater opportunities should be a bipartisan goal,” Senator Brown said in a recent interview with Tax Credits for Working Families. “Improving the EITC ensures that Americans who work hard and take responsibility can take home more of their pay each month. As we continue our economic recovery, it’s vital that we pursue policies that promote work and provide ladders of opportunity to more Americans.”

For more information on Senator Brown’s Early Refund EITC plan, click here.