The increasing use of Temporary Assistance for Needy Families (TANF) funds for state Earned Income Tax Credit (EITC) programs in the United States (U.S.) has raised concerns about the diversion of TANF funds for purposes not directly aligned with TANF’s core objectives. This study investigates whether states’ allocation of TANF funds to state EITC programs reduces the overall income of both current and former TANF recipients and potentially widens changes in the poverty gap. Changes in the poverty gap are calculated by subtracting the poverty gap at time t−1 from that at time t, where the poverty gap is defined as the difference between 50 percent of the state median income of households with children and the average income of TANF recipients. This study employs panel data from all fifty states spanning 2008–2016 and utilises fixed-effects estimation. Empirical findings suggest that states’ utilisation of TANF funds to support state EITC programs does not have a statistically significant effect on changes in the poverty gap for TANF recipients. This study proposes that TANF fund diversion may reflect states’ efforts to pursue poverty reduction, particularly given the inconclusive evidence regarding TANF’s anti-poverty impact.