An Earned Income Tax Credit (EITC) is a tax reduction and a wage supplement for low- and moderate-income working families. The federal government, and some states, administer an EITC through the income tax. States that enact EITCs can reduce child poverty, support welfare-to-work efforts, and cut taxes for families struggling to make ends meet. This report focuses on: (1) "The Problem: Poverty Despite Work"; (2) "Helping Make Work Pay: The Federal Earned Income Tax Credit"; (3) "Why Enact a State Earned Income Tax Credit?" (federal EITC does not lift all working families out of poverty, and state EITCs lift additional families out of poverty, complement welfare reform, and provide needed tax relief); (4) "Designing a State Earned Income Tax Credit" (refundable versus nonrefundable EITCs, setting the size of a state EITC, adjustments for family size, and workers without qualifying children); (5) "Financing a State Earned Income Tax Credit" (estimating the cost of a refundable state EITC and financing state EITCs through the Temporary Assistance for Needy Families Block Grant); and (6) "Enacting a State Earned Income Tax Credit: Case Studies." Two appendixes include the federal EITC parameters and the estimated cost of refundable state EITCs. (SM)