The Tax Cuts for Workers Act

On April 9th, Senators Catherine Cortez Masto (NV-D) and Michael Bennet (CO-D) introduced the Tax Cuts for Workers Act, a bill that expands the Earned Income Tax Credit (EITC) for filers without qualifying children. This report describes the reform, illustrates the impact for a hypothetical household, and summarizes the nationwide impact using the PolicyEngine microsimulation model.

See how the TCWA affects your household here.

While the US provides the EITC to filers with and without qualifying children, it limits eligibility and reduces the amount for those without children. Such filers must be between ages 25 and 65, and the credit phases in at 7.65% of earnings until earnings reach $4,220 (in 2026). At $10,840 of adjusted gross income ($18,100 for joint filers), the credit is reduced with 7.65% of AGI.

In 2021, the US passed the American Rescue Plan Act (ARPA), which included an expansion to the EITC for filers without qualifying children. ARPA lowered the minimum age to 19 (24 for eligible students) and removed the maximum age. It also doubled the phase-in and phase-out rates to 15.3%, while increasing the earnings and AGI levels that governed the credit, thereby increasing the maximum credit value. It did not adjust the “married filing joint bonus”, an additional AGI level for joint filers before the credit starts phasing out. Read our report on the ARPA EITC here.

The TCWA restores ARPA’s EITC changes, while setting the dollar figures to their 2021 values starting in 2026 (rather than the values they would have been if ARPA were made permanent, due to inflation adjustments). Table 1 displays these parameter values under current law and TCWA as of 2026.

Table 1: EITC Parameters for Filers Without Qualifying Children (2026)

Provision	Current Law	TCWA
Minimum age	25	19
Maximum age	65	N/A
Phase-in rate	7.65%	15.3%
Earnings at which the credit fully phases in	$8,677	$9,820
Phase-out start	$10,840	$11,610
Married filing joint bonus for phase-out start	$7,260	$7,260
Phase-out rate	7.65%	15.3%

These changes result in the maximum credit value rising from $662 ($8,677 * 7.65%) to $1,502 ($9,820 * 15.3%).

Consider a married couple without qualifying children, residing in Colorado and earning $6,000 in 2026. The TCWA increases their net income by $574, due to increased federal and Colorado EITC amounts of $459 and $115 respectively.

Looking at the net income distribution for this household, we see that the couple will experience an increase in net income until earnings of $29,000, where the federal EITC is fully phased-out under the TCWA. The maximum net income increase occurs between earnings of $10,000 and $19,000 with a spike at $18,000, due to the higher phase-out start.

These changes in the Earned Income Tax Credit alter marginal tax rates from between -18 and +19 percentage points.

This change is reflected in the total marginal tax rate schedule, increasing the marginal rate above 60% for earnings between $19,000 and $20,000, and $27,000 and $27,500, and reducing it to -11% for earnings up to $7,000.

To estimate the economic effects, we apply the PolicyEngine US 1.247.0 microsimulation model and our Enhanced Current Population Survey, comparing against current law (assuming TCJA expires).

Over the 2026-35 budget window, and assuming no behavioral responses, the reform would cost the federal government $65.4 billion, with costs decreasing from $7.0 billion in 2026 to $6.1 billion in 2035.

Table 2: Budget Window Impact of the Tax Cuts for Workers Act, with and without behavioral responses.

Year	Static	With CBO behavioral responses
2026	7.0	19.2
2027	6.8	19.0
2028	6.7	18.4
2029	6.7	18.6
2030	6.6	18.2
2031	6.5	17.5
2032	6.4	16.8
2033	6.3	16.5
2034	6.2	16.1
2035	6.1	15.5

Here we report various distributional impacts for 2026, assuming no behavioral responses. These account for mechanical state and local tax impacts due to EITC matches, which we project at $1.5 billion for 2026 (in addition to the $7.0 billion federal cost).

The TCWA would increase the net income of 10% of the population, with those in the eighth decile most likely to experience an increase in household income (26%). Nobody’s net income falls.

The TCWA would increase the net income of households by $59, with the largest increase in the first ($95) and second income deciles ($91). Households in upper income deciles still benefit as they can include multiple tax units.

Our analysis finds that the TCWA would reduce the poverty rate by 0.3% (0.1 percentage point reduction in the Supplemental Poverty Measure) in 2026, disproportionately among adults aged 18-64 (0.4%).

The Tax Cuts for Workers Act would cost the federal government $65.4 billion over the 2026-35 budget window, assuming no behavioral responses. Accounting for state and local tax impacts, which add 21% to the aggregate impact beyond the federal taxes, it increases net income for 10% of the population, with an average household increase of $59 ($590 per affected household). Households in the first and second income deciles would see the largest benefits ($95 and $91 respectively). The TCWA is projected to reduce poverty by 0.3% and the Gini index of income inequality by 0.05%.

We invite readers to explore this reform and others in the PolicyEngine app.