New Mothers Who Get Back to Work Quickly Earn More

Single mothers receive three-fourths of the tax refunds the IRS pays out every year through the Earned Income Tax Credit (EITC) for low-income workers.

The EITC’s big plus is that it’s fully refundable. In contrast to nonrefundable tax credits that reduce the taxes a worker already owes, the EITC gives refunds even if they don’t owe anything, as is often the case with low-income workers. Another plus is the amount in an EITC refund, which is sizable relative to how much they earn.

These advantages are important because they create a financial incentive for new mothers to get back to work quickly so they can claim the credit at tax time. Congress in 1993 enhanced that incentive by hiking the maximum EITC by nearly $1,000 for one child, to $3,300 per year. (The 2023 maximum is $3,995).

Researchers Elira Kuka and Na’ama Shenhav were interested in this enhancement to the incentive because it casts a new light on the earnings gains by women who, because they wanted that larger tax credit, took less time off from the labor force to care for their babies.

Ten to twenty years later, working single women who had their first baby within the first three years the higher EITC was in effect were earning more – 4.2 percent more annually – than the other group in the study. That comparison was with women whose first birth occurred before the EITC increase, resulting in longer gaps in their careers.

The mothers who, partly spurred by the larger tax credit, took shorter breaks after childbirth earned about $38,000 more over 20 years than the mothers who took off more time after their babies were born.

The women who returned to work sooner earned more not because they worked more hours. In fact, the hours evened out over the long-run for all the women in this study. Instead, they gained more work experience, which translated to higher wages over time. Their earnings were more likely to be in the top 25 percent of all the mothers.

This study demonstrates the importance of policies that encourage low-income mothers who may be vulnerable to dropping out of the labor force to return to work quickly so they can continue on their career tracks and protect their future earnings potential.

“There are steep returns to work incentives at childbirth that accumulate over the life cycle,” the researchers said. 

To read this study by Elira Kuka and Na’ama Shenhav, see “Long-run Effects of Incentivizing Work after Childbirth.”

The research reported herein was derived in whole or in part from research activities performed pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Retirement and Disability Research Consortium.  The opinions and conclusions expressed are solely those of the authors and do not represent the opinions or policy of SSA, any agency of the federal government, or Boston College.  Neither the United States Government nor any agency thereof, nor any of their employees, make any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this report.  Reference herein to any specific commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation or favoring by the United States Government or any agency thereof.