States Can Adopt or Expand Earned Income Tax Credits to Build Equitable, Inclusive Communities and Economies

Thirty-one states plus the District of Columbia and Puerto Rico have enacted their own version of the federal Earned Income Tax Credit (EITC) to boost the incomes of people paid low wages. State EITCs build on the success of the federal credit by helping families afford the basics, reducing poverty, and helping families thrive in the long run through improved child and maternal health, school achievement, and other benefits. Because people of color, women, and immigrants are overrepresented in low-wage work, state EITCs are an important tool for advancing equity. With high numbers of families facing food insecurity, eviction, and other hardships caused by the COVID-19 pandemic, state EITCs are more important than ever. And as they bolster families’ incomes, EITCs also boost local communities and state economies.

Lawmakers in states without their own EITC should enact one. States that have limited their credits should make the credit fully available to all families, no matter how much they owe at tax time. States should also expand their credits to those left out of the federal credit, particularly by ending the exclusion for immigrants filing with an Individual Taxpayer Identification Number (ITIN) and by eliminating restrictions for individuals without children in the home.

EITCs Counteract Stalled Wages That Hold Back Low-Paid Workers

The EITC is a tax credit provided to individuals and families. Refundable credits including EITCs boost take-home pay for families paid low wages and can help address imbalances in the tax system that ask the most of people who earn the least.

The pandemic and resulting economic downturn have hit people who are paid low wages the hardest. Not only are these individuals more likely to lose their jobs and income due to the pandemic, if they are front-line, essential workers — and have been able to keep their job — they tend to be at higher infection risk for COVID-19. People of color, women, and immigrants are overrepresented in many of these jobs,[1] in significant part due to structural barriers such as wealth and income disparities, inadequate access to health care, and discrimination in hiring. As a result, these groups of people are disproportionately likely to be paid wages that do not provide for their basic needs.

Women, for example, comprise less than half of the total workforce, but they represent roughly 3 in 5 workers in occupations with low pay in every state except Nevada.[2] In the first year of the pandemic, more than 2.3 million women left the labor force compared to 1.8 million men, due to both their concentration in low-wage industries and to women still shouldering a disproportionate share of family caregiving needs.[3] Women of color comprise a much higher share of the low-wage workforce than they do of the workforce as a whole.[4] (See Figure 1.) Black and Latino workers are far more likely than white workers to earn poverty-level wages.[5] And almost 30 percent of people without a lawful immigration status work in the service sector, where wages are often low.[6]

The pandemic has intensified hardship,[7] but these are long-standing trends. Low wages make it hard for families to afford basics such as decent housing in safe neighborhoods, nutritious food, reliable transportation, quality child care, and educational opportunities that can improve their earnings. For the most part, wages for lower-paid workers have stagnated or declined over the last 50 years, with the only period of sustained growth from the late 1990s to the early 2000s.[8] Nominal wage growth has been strong recently, especially for lower paid workers, but high inflation has eroded most or all of those gains. And though increases in state minimum wages have helped boost wages for those earning the least, these gains are meager when compared with significant productivity growth over that same period (productivity has increased 62 percent since 1979, or 3.5 as much as pay).[9]

Figure 1

While many families’ wages do not reflect the last 50 years of economic growth, the basics — including housing, child care, and transportation — have gotten more expensive over time. The pandemic has further strained resources as many families have lost jobs and income. For example, housing costs for renters continue to increase faster than incomes, Census data show: from 2001 to 2019, after adjusting for inflation, median renter household income rose just 3.4 percent, while rents rose 15 percent.[10] From August to September 2021, an average of 1 in 5 renters living with children were estimated to be behind on rent[11] and renters of color were more likely to report that their household was not caught up on rent. More than 1 in 3 children living in rental housing live in a household that either isn’t getting enough to eat or is not caught up on rent.[12]

Furthermore, state tax systems that ask the most as a share of income from families earning the least contribute to squeezing families between inadequate wages and increasingly expensive basic needs. In 9 of every 10 states, families earning the least — disproportionately families of color — pay a larger share of their income in state and local taxes than do higher-income families. (See Figure 2.) That means they’re shouldering more of the load for roads, schools, health care, and other investments that contribute to broadly shared prosperity.[13] Most states’ tax structures worsen racial and ethnic inequities because households of color are more likely to have lower incomes and less wealth than white households due to historical and ongoing discrimination and bias.

Figure 2

Federal, State EITCs Can Ease Hardship, Promote Opportunity Now and Over the Long Term

Thirty-one states plus Puerto Rico and D.C. have adopted state EITCs to boost family income. (See Figure 3.) Most state EITCs are modeled directly on the federal credit: they use federal EITC eligibility rules and match a specified percentage of the federal credit. Refundable credits range from 3 percent of the federal credit in Montana to 100 percent in D.C., once it’s fully phased in in tax year 2026.[14] (See Figure 4 below and Appendix Table 1 for more details on each state’s credit.) To help more families make ends meet during the pandemic and beyond, states without an EITC should adopt one and those with EITCs should continue to expand them.

Figure 3

Federal, State EITCs Well-Targeted to Low-Paid Households

Working families with children earning up to about $42,000 to $57,000 (depending on marital status and the number of children in the family) generally qualify for a state EITC, with the largest benefits going to families with incomes between about $11,000 and $25,000. Workers without children can also qualify, but the benefit is small, and they can receive it only if their income is less than about $21,000 ($27,000 for a married couple). The maximum credit varies by number of children claimed, reflecting the reality that larger families face higher living expenses than smaller families.

State and federal EITCs are well-targeted to families struggling to get by on low wages. Over 26 million families, including over 31 million children, claimed the federal credit in tax year 2019. Across the 50 states and D.C., the median income of eligible families is between $11,000 and about $20,000 as of 2018. The most common industries for EITC-eligible workers include retail, health care occupations, and food service.

Refundability is a key feature of the EITC and the source of much of its ability to boost income, reduce poverty, and help families in the long run. It means that the full credit is available to families, no matter how much they owe at tax time, enabling them to keep more of what they earn despite being paid low wages. Without this measure, the credit leaves out families who earn the least. Most state credits are refundable.

Figure 4

Figure 5 shows how the federal EITC works for a single-parent family with one child earning the minimum wage in 2021 (about $15,000 a year for full-time, year-round work). For every dollar the parent earns, they get 34 cents in EITC benefits. The value of the credit continues rising at that rate until their earnings reach $10,640. At that point, the parent receives the maximum benefit of $3,618. Once their earnings exceed $19,520 the credit shrinks by about 16 cents for each additional dollar of earnings until reaching zero at about $42,000. Although the EITC is adjusted for inflation each year, the 2017 tax law erodes the credit’s value over time by using a different measure of inflation, the “chained” Consumer Price Index. This means families will lose $100-$300 by 2027, depending on family size.[15]

 
Figure 5
 

The American Rescue Plan Act, enacted in March 2021, expanded the federal EITC for the 2021 tax year for low-paid working adults who are not raising children and previously received only a tiny credit. It raises the maximum EITC for these individuals from about $540 to about $1,500, raises the income limit for them to qualify from about $16,000 to at least $21,000, and expands the age range of those eligible to include younger adults aged 19-24 who aren’t full-time students and those aged 65 and over. The Rescue Plan provides timely income support to over 17 million people who work for low pay. It also extends a federal supplement to help Puerto Rico expand its local EITC.[16]

EITCs Boost Family Income, Communities, and Local Economies

EITCs’ benefits go far beyond the dollars that a family receives. By helping families keep up basic spending, EITCs help families build economic security, improve longer-term health and well-being, and boost state and local economies. Especially during a pandemic that is hitting workers paid low wages the hardest, EITCs:

Reduce poverty, especially in communities of color. Over 7 million children in working families lived below the official poverty line (about $26,000 for a family of four) in 2020;[17] millions of families who are modestly above that income level still have difficulty affording food, housing, and other necessities.

While state and federal EITCs serve a larger number of white households than any other racial or ethnic group (due in part to population size), they serve a larger proportion of people of color relative to their population size, and the EITC has an outsized impact in reducing poverty rates for households of color. The average state EITC benefit for non-white- or Hispanic-headed households was $120 higher than for white, non-Hispanic households, a recent study found, and state EITCs lift a larger share of non-white and Hispanic populations above the poverty line.[18] This partly reflects the fact that the largest EITCs go to households with children struggling on low wages and the high poverty rates for children of color. Child poverty is much higher for Latino and Black children than for white children, and there are significant disparities among Asian and Pacific Islander children despite low overall poverty rates. For example, in 2019 35 percent of Burmese, 27 percent of Hmong, and 25 percent of Bangladeshi children lived in poverty compared with 10 percent of Asian and Pacific Islander children overall.[19]

Help children and families thrive. Research suggests that the income from tax credits like the EITC helps children from birth through retirement and beyond. For instance, research indicates that children in families receiving such income do better in school, are likelier to attend college, and are likely to earn more as adults, and women especially are likely to see a more secure retirement.[20] The EITC may play a particularly important role in helping children of color improve their math achievement, complete high school, and enroll in college, the research suggests.[21]

Evidence also suggests that additional income from tax credits can support families in meeting the full range of their children’s needs in the short and long term. Studies have found that more generous state EITCs are associated with improved birth outcomes, and states with refundable EITCs had improved maternal health and healthier birth weights.[22] One study reviewed how families spend their annual EITC refunds and found that households eligible for the credit spent more on healthy foods during the months when most refunds are paid.[23] Individuals with higher incomes can also more easily afford healthy recreational activities, quality housing, and other opportunities that contribute to their overall well-being.

Boost local economies. Tax credits like the EITC help families who earn low wages keep up basic spending. This is particularly important during an economic downturn, such as the one caused by COVID-19, when so many families are experiencing hardship and many local businesses are also struggling. Families spend their EITCs partially on bigger purchases such as a car repair or a security deposit on an apartment, and partially on routine bills and expenses.[24] When families are able to keep up basic spending, this in turn helps their local and state economies.

State EITCs also play a role in bolstering family economic security so that more people can create innovative products and services, benefitting individuals and state economies in the long term. Economic insecurity is linked to a range of bad outcomes for children, such as higher stress levels and lower educational achievement, and weakens young people’s likelihood of realizing their economic potential as adults. Working to raise household income and make sure families can access the supports they need is a straightforward way for policymakers to foster more long-term innovation and to improve children’s outcomes and their likelihood of future success.[25]

States Can Build Stronger Futures by Enacting and Strengthening State EITCs

Several design aspects of the federal credit constrain its potential to boost income and help struggling families make ends meet. These aspects in turn limit state credits that are based on the federal EITC. The federal credit is not available to immigrants and their families if they file taxes with an ITIN, and for people without children in the home, the credit has age restrictions, is small, and phases out at too low a level. The Rescue Plan expands the age range of eligible workers without children to include younger adults ages 19-24 (excluding students under 24 who are attending school at least part time), as well as people aged 65 and over. It also increases the maximum income, although both expansions are only for one year. Congress should take action to make these expansions permanent, and states should continue to improve state credits for workers without children in the home in the meantime.

States can take steps to lessen these constraints and improve the equity of their tax systems in these ways:

  • Enact a new, refundable credit. Nineteen states have not yet taken the step of creating a state EITC. Given the credit’s benefits for families, communities, and states, as well as the urgency to help families struggling due to the pandemic, now is an ideal time to do so. (See Appendix Table 2 for estimating the cost of creating a new credit.)
  • Make credits refundable (Hawai’i, Missouri, Ohio, South Carolina, Utah, and Virginia have not). Twenty-five states, Puerto Rico, and D.C. follow the federal practice of offering an EITC that is fully available to families with low or no earnings in a given year. Without this feature, state EITCs fail to offset the other substantial state and local taxes that families pay, such as sales taxes, property taxes, and others.
  • Increase the credit for working adults without children in the home and eliminate age restrictions for these individuals. The federal EITC for people paid low wages who don’t have children in the home is limited and small. This is despite the fact that they are integral members of their communities and local economies, and many are non-custodial parents or likely future parents. This group is also disproportionately people of color — about 26 percent are Latino and 18 percent are Black (compared to 19 percent and 12 percent of the population, respectively).

The Rescue Plan temporarily raises the maximum EITC for working adults not raising children from roughly $540 to roughly $1,500 and raises the income limit for these adults to qualify from about $16,000 for individuals to at least $21,000 for married families. It also expands the age range of eligible working adults without children to include younger adults aged 19-24 who aren’t full-time students, as well as people aged 65 and over. This provides timely income support to over 17 million people who work for low pay.[26]

States need not wait for an expansion of the federal credit for working adults without children in the home. D.C., Maine, Maryland, Minnesota, New Jersey, and New Mexico, have all reduced age restrictions, California has eliminated them for workers 18 and older and Puerto Rico has for workers aged 19 and older, and California, D.C., Maryland, and Maine have increased the credit amount for these individuals.

  • End the exclusion for individuals using ITINs. States should make their credits more inclusive for people regardless of their immigration status, as California, Colorado, Maine, Maryland, New Mexico, and Washington have already done. That would help expand economic opportunity for all their residents and support essential workers earning low pay who are immigrants. Federal policymakers, however, excluded millions of immigrants from many of the emergency pandemic supports they enacted in late 2020. And many of those same people are ineligible for the federal EITC and Child Tax Credit because they lack Social Security numbers and file taxes with an ITIN. If all states with EITCs enacted this change, it would help more than 1 million households. (See Table 1.)

A provision of the Rescue Plan, which limits states’ ability to cut taxes while spending federal pandemic aid, should not limit states’ ability to enact and improve state EITCs. The final rule allows states to reduce revenues by less than 1 percent of their 2019 budget, adjusted for inflation; most proposed EITC expansions would be much less.[27] For example, Connecticut announced that it will use funds retroactively to increase its 2020 EITC from 23 percent to 41.5 percent, and plans to issue checks to households by the end of February. The state is using the final portion of its funds provided through the CARES Act, passed in March 2020, for these payments.[28]

States Without an Income Tax Can Enact a State EITC

In the nine states without an income tax, state revenue departments typically do not collect the information about family income and structure needed to determine EITC eligibility. Nevertheless, it is feasible for these states to enact and implement an EITC, and the example of Washington State’s Working Families Tax Rebate illustrates how this process could work.

Washington State finally funded its Working Families Tax Credit last year, which policymakers created in 2008 but hadn’t implemented due to the Great Recession and resulting budget shortfalls. The newly implemented credit provides larger rebates to families and is inclusive of people who file taxes with an ITIN.

Eligible families will apply to the Washington Department of Revenue to receive the credit. The state will verify eligibility by retroactively matching IRS data to the application. The bill directs the revenue department to work with the IRS to pay the rebate automatically as soon as is feasible.a The IRS provides these data to state revenue departments under a data-sharing arrangement and could work with Washington State to share data more quickly to facilitate an automatic program.

Any of the eight other states without a broad-based income tax (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, and Wyoming) could follow Washington State’s model. State EITCs could be particularly helpful in these states because their tax systems rely heavily on excise taxes, property taxes, and in most cases, sales taxes. Because of this reliance, low- and moderate-income families in these states tend to pay a significantly higher share of their income in taxes than wealthier families.b

a State of Washington HB 1297, enacted May 4, 2021.

b ITEP, “Who Pays, 6th Edition,” https://itep.org/whopays/.

TABLE 1
State EITC Expansions for Tax Filers Using ITINs Would Help Millions Make Ends Meet
  Assuming participation rates of the currently eligible EITC population*
State Estimated EITC
ITIN returns (2015)
Estimated State EITC Refunds
(2020 dollars)
California 480,840 $70,271,000
Colorado 31,640 $7,514,000
Delaware 13,275 $7,516,500
District of Columbia 3,445 $3,140,500
Hawai’i 205 $64,000
Illinois 110,445 $52,547,000
Indiana 27,215 $6,031,000
Iowa 6,010 $2,273,500
Kansas 12,820 $6,172,500
Louisiana 6,310 $903,000
Maine 45 $10,500
Maryland 40,385 $21,715,500
Massachusetts 13,230 $9,326,500
Michigan 12,440 $1,971,000
Minnesota 14,655 $12,346,000
Montana 80 $5,500
Nebraska 7,485 $1,848,500
New Jersey 54,100 $54,522,500
New Mexico 11,570 $5,364,000
New York 74,195 $56,576,500
Ohio 13,205 $2,796,000
Oklahoma 15,165 $996,500
Oregon 20,440 $4,740,500
Rhode Island 2,700 $1,087,500
South Carolina 14,400 $1,559,500
Vermont** N/A
Virginia 30,240 $8,966,500
Washington 46,565 $11,324,500
Wisconsin 22,065 $7,981,000
Total 1,085,170 359,571,500

ITIN = Individual Tax Identification Number. Table lists states with existing state earned income tax credits.

*State calculations that adjust for participation are generated by reducing estimates of EITC-eligible ITIN filers by both the federal participation rates as published by the IRS for tax year 2016 (which is the most recently reported rate in the EITC Central at https://www.eitc.irs.gov/eitc-central/participation-rate/eitc-participation-rate-by-states) and a further 10 percent reduction to account for attrition between federal EITC and state credit claimants.

** Vermont has a state credit at 36 percent of the federal EITC, but no ITIN returns for Vermont were included in the 2015 IRS data.

Sources: Institute on Taxation and Economic Policy analysis of IRS 2015 ITIN Filer Data; “End the tax penalty against immigrant workers,” Center for Community Change, April 2020, Table 1, https://communitychange.org/wp-content/uploads/2020/04/ITIN_EITC_Fact_Sheet_Tables_April_2020-002.pdf.

States Can Help Families Claim EITCs

Given the credit’s benefits for families, communities, and local economies, states have a vested interest in assisting residents in claiming EITCs. States can take steps to lower barriers to claiming the EITC and other tax credits for which families are eligible by:

Supporting free tax preparation through VITA (Volunteer Income Tax Assistance). VITA sites provide free, high-quality tax preparation services to people who generally make $58,000 or less, which includes virtually all families eligible for EITCs. The IRS coordinates the program and VITA tax preparers maintain a high degree of accuracy in tax preparation. VITA sites are eligible for federal grant funding from the IRS, but this funding is limited and must be matched by state, local, or private dollars. States can help provide matched funding and assist VITA sites with community outreach. During the pandemic, VITA sites are adapting by offering virtual options and other ways to continue providing this assistance.[29]

Pre-filling and sending tax forms for families likely to be eligible for EITCs. States receive wage, withholding, and other tax information from employers. They can pre-fill a state tax form with this information and send it to families to assist in preparing their taxes. For example, New Jersey legislators considered such a bill in 2020, which would also help connect individuals with other public benefits for which they qualify.[30] A Maryland proposal would create an Income Tax Return Preparation Assistance Program for Low-Income Families to use employer reported wages to pre-fill income tax returns and amend prior-year returns beginning in 2025.[31]

Educating the public. States can advertise the availability of EITCs through newspapers and social media, on the radio, and by other means.[32]

Conducting targeted outreach to families already enrolled in economic security programs. Many families who are eligible for SNAP, Medicaid, and other economic security programs may be eligible for the EITC and other state tax credits. State agencies can send notices and reminders and connect enrolled families to trusted tax preparation assistance providers such as VITA and United Way.

Requiring employers to share information about the EITC with employees. States can require employers to send or post notices to their employees who may qualify for the EITC. These notices are another way to share information about the credit, especially for individuals who may not know that they are eligible. States with such requirements for either the federal or state EITC include California, Illinois, Louisiana, Maine, Maryland, New Jersey, Oregon, Texas, and Virginia.

Some states and localities have already taken these steps. For example, the California Department of Community Services and Development, along with the Franchise Tax Board, administers a grant program that funds EITC education and outreach efforts.[33] The city of Detroit undertook a significant outreach effort and boosted its tax preparation services in 2016 and 2017, which led to an additional 18,000 residents claiming the credit in 2017.[34]

Appendix

APPENDIX TABLE 1
State Earned Income Tax Credits, 2021
      Eligibility Expansions Beyond the Federal Credit
State Percentage of Federal Credit Refundable? Individual Taxpayer Identification Number Filers Individuals Without Children in the Home Additional Eligibility Expansions
Californiaa 85% of federal credit, up to 50% of the federal phase-in range Yes Yes Workers without children in the home aged 18 and older $1,000 Young Child Tax Credit for families with children under age 6
Coloradob 15% Yes Yes    
Connecticutc 30.5% Yes No    
Delawared 20% Yes – 4.5% No    
District of Columbiae 40%/
100%
Yes No Workers without children in the home with incomes up to twice the poverty line Non-custodial parents
Hawai’i 20% No No    
Illinois 18% Yes No    
Indianaf 9% Yes No    
Iowa 15% Yes No    
Kansas 17% Yes No    
Louisiana 5% Yes No    
Maineg 20%/25% Yes Yes Workers without children in the home aged 18-24  
Marylandh 45%/100% Yes Yes Workers without children in the home under age 24  
Massachusettsi 30% Yes No   Survivors of domestic abuse who would otherwise be ineligible
Michigan 6% Yes No    
Minnesotaj Avg. 39% Yes No Workers without children in the home aged 21-24  
Missourik Enacted but not yet available, see footnote        
Montana 3% Yes No    
Nebraska 10% Yes No    
New Jersey l 40% Yes No Workers without children in the home over 18  
New Mexico m 20% Yes Yes Workers without children in the home aged 18-24  
New Yorkn 30% Yes No   Non-custodial parents
Ohio 30% No No    
Oklahomao 5% No No    
Oregonp 9%/12% Yes No    
Rhode Island 15% Yes No    
South Carolinaq 83.33% No No    
Utahr Enacted but not yet available, see footnote        
Vermont 36% Yes No    
Virginia 20% No No    
Washingtons Enacted but not yet available, see footnote        
Wisconsin 4% – one child
11% – two children
34% - three children
No credit – childless workers
Yes No    
Puerto Ricot Follows a separate schedule; maximum credit between $1,500-$6,500 based on family size Yes No Workers without children in the home aged 19 and older  

a. California’s credit is available to working families and individuals with wage income below $30,000 depending on family size. The credit is worth 85 percent of a household’s federal EITC until household income reaches half of the level at which the federal credit is fully phased in; it then begins phasing out at varying rates, depending on family size. In 2021, the maximum credit ranges from $255 for workers without dependent children to $3,160 for workers with three or more children, plus a $1,000 Young Child Tax Credit for families with children under 6. The value of the credit is set each year by the legislature. For a full list of 2021 parameters see: https://www.ftb.ca.gov/file/personal/credits/california-earned-income-tax-credit.html.

b. Colorado’s credit will increase from 15 to 20 percent of the federal EITC in 2022. For 2023 through 2025, the credit increases to 25 percent and returns to 20 percent beginning in 2026. The state makes the American Rescue Plan Act expansion for workers without children aged 19-24 permanent in tax year 2022.

c. Connecticut is retroactively increasing its 2020 EITC to 41.5 percent using funding from the CARES Act Coronavirus Relief Fund. For full details see: https://portal.ct.gov/Office-of-the-Governor/News/Press-Releases/2021/12-2021/Governor-Lamont-Directs-EITC-for-2020-To-Be-Retroactively-Enhanced.

d. Delaware's credit is partially refundable by allowing families to choose the higher of a refundable credit worth up to 4.5 percent of the federal EITC or the non-refundable credit, which is worth up to 20 percent of the federal EITC.

e. The District of Columbia's credit gradually increases to 70 percent in tax year 2022-2024, to 85 percent in tax year 2025, and 100 percent beginning in tax year 2026 for adults with dependent children. A portion of the credit will be paid monthly over a 12-month period if an individual's credit exceeds a certain amount. The D.C. EITC also counts the children of non-custodial parents, as long as the worker is aged 18 to 30, and the worker pays child support and is up to date on those payments.

f. Indiana's credit will increase from 9 to 10 percent of the federal EITC starting in tax year 2022. The state decoupled from federal provisions expanding the EITC for families with three or more children and raising the income phase-out for married couples.

g. Maine temporarily increased its tax year 2021 credit to 20 percent but will return to 12 percent starting tax year 2022. People filing with an Individual Taxpayer Identification Number (ITIN) are now eligible for the EITC.

h. Maryland's credit is 45 percent of the federal credit for families with children in the home for tax year 2020-2022 and 100 percent for individuals without a qualifying child (up to $530). The rate will return to 28 percent after 2022. Maryland’s EITC now includes people filing with an ITIN during the same period. Maryland also offers a non-refundable EITC set at 50 percent of the federal credit. In effect, taxpayers may claim either the refundable credit or the non-refundable credit, but not both.

i. In Massachusetts, survivors of domestic violence can file their own tax returns and remain eligible for the EITC. (Otherwise, survivors separated from a spouse must either file joint tax returns with an abuser or claim head of household status, for which they may not be eligible.)

j. Minnesota’s credit for families with children, unlike the other credits shown in this table, is structured as a percentage of income rather than as a percentage of the federal credit. In 2019, Minnesota doubled the maximum credit for workers without children in the home and raised the income limit for those workers. Families with three or more children receive a larger credit (previously they received the same credit as families with two children) and families with one or two children see a small increase. The average given here reflects total projected state spending for the Working Family Credit divided by projected federal spending on the EITC in Minnesota as modeled by Minnesota’s House Research Department; this average fluctuates from year to year and reflects 2019 data.

k. Missouri will have a non-refundable EITC worth 10 percent of the federal EITC starting in tax year 2023. The credit will increase to 20 percent if state revenue rises beyond a certain threshold.

l. New Jersey expanded age eligibility to workers without children in the home aged 18-21 (21-24 are already eligible) and 65 years or older in the 2022 budget.

m. New Mexico's credit will increase from 20 to 25 percent of the federal EITC beginning in tax year 2023.

n. New York non-custodial parents who meet certain requirements may claim 20 percent of the federal credit that they would have received with a qualifying child, or 2.5 times the federal credit for workers without qualifying children.

o. Oklahoma's credit becomes refundable beginning in tax year 2022.

p. Oregon's credit is 12 percent for families with children 3 year and younger, otherwise it is 9 percent. The credit is now available to those filing with an ITIN for tax year 2022-2025.

q. South Carolina's EITC is phased in for six equal installments starting in 2018, to reach 125 percent of the federal credit by 2023. This credit is non-refundable and is less generous than a 5 percent refundable EITC because workers with very low incomes tend to have little to no tax liability.

r. Utah’s legislature enacted a nonrefundable EITC worth 15 percent of the federal credit on February 10, 2022, which the governor signed on February 11. It will be available starting in tax year 2022.

s. Washington enacted a tax rebate in 2008 but never funded it. In 2021, the state enacted an updated version of the rebate, the Working Families Tax Credit. It will provide an annual cash rebate ranging from $300-$1,200, depending on household size and income level beginning in 2023. The credit allows people using ITINs to claim it. It is structured as a sales tax exemption in the form of a refund, but it functions similarly to an EITC and eligibility is based on receipt of the federal EITC.

t. Puerto Rico residents are ineligible for the federal EITC. The American Rescue Plan Act provided $600 million in federal funds to improve the credit, and Governor Pierluisi signed a bill in August 2021 stipulating how the funds would be used. It provides a maximum credit of $1,500 to $6,500 based on income and family size. It also expands eligibility for those who are self-employed and workers without children in the home who are age 19 and older. For additional information about Puerto Rico’s EITC parameters, see https://espaciosabiertos.org/en/credito-por-trabajo/ (an English version is not available).

APPENDIX TABLE 2
Estimated Cost of Refundable State Earned Income Tax Credits, Fiscal Year (FY) 2023
        Estimated Cost of State EITC in FY 2023* ($ in millions)
State Federal EITC Claims in Tax Year 2019 ($ in thousands) Percent of Total U.S. EITC Claims, Tax Year 2019 Estimated Federal EITC Claims in FY 2023 ($ in millions) Set at 5% of Federal Credit Set at 10% of Federal Credit Set at 20% of Federal Credit
States Without Refundable EITCs
Alabama 1,352,006 2.10% 1,523 69 137 274
Alaska 97,413 0.15% 110 5 10 20
Arizona 1,489,014 2.31% 1,677 75 151 302
Arkansas 786,374 1.22% 886 40 80 159
Florida 5,382,282 8.36% 6,063 273 546 1091
Georgia 2,982,798 4.63% 3,360 151 302 605
Hawai’i** 209,851 0.33% 236 11 21 42
Idaho 296,186 0.46% 334 15 30 60
Kentucky 962,821 1.50% 1,085 49 98 195
Mississippi 1,063,327 1.65% 1,198 54 108 216
Missouri** 1,195,114 1.86% 1,346 61 121 242
Nevada 646,541 1.00% 728 33 66 131
New Hampshire 136,915 0.21% 154 7 14 28
North Carolina 2,279,063 3.54% 2,567 116 231 462
North Dakota 94,595 0.15% 107 5 10 19
Ohio** 2,240,274 3.48% 2,524 114 227 454
Pennsylvania 2,068,428 3.21% 2,330 105 210 419
South Carolina** 1,224,559 1.90% 1,379 62 124 248
South Dakota 135,407 0.21% 153 7 14 28
Tennessee 1,571,815 2.44% 1,771 80 159 319
Texas 7,435,193 11.55% 8,375 377 754 1,508
Utah** 425,005 0.66% 479 22 43 86
Virginia** 1,393,501 2.17% 1,570 71 141 283
West Virginia 337,381 0.52% 380 17 34 68
Wyoming 76,670 0.12% 86 4 8 15
Other Jurisdictions 31,001 0.05% 35 2 3 6

* Estimates assume that the cost of a state EITC will be 90 percent of the cost of the federal EITC in each state.

** For Hawai’i, Missouri, Ohio, South Carolina, Utah, and Virginia, the cost shown is the total cost of a refundable credit (although Missouri’s and Utah’s are not yet available to tax filers). Since those states already enacted non-refundable credits, the added cost of making the credit refundable would be substantially less than the amount shown.

Note: These state-by-state cost estimates are calculated based on Internal Revenue Service (IRS) statistics on EITC claims for tax year 2019 and projections by the congressional Joint Committee on Taxation (JCT) of the total cost of the federal EITC for tax year 2023. We applied the state’s share of the federal EITC costs to JCT’s projected total cost of the federal EITC for tax year 2023.

Three Steps to Estimating the Cost of a State EITC

Step 1: Estimate the cost of the federal EITC claims in the state for a future fiscal year. First divide the most recent IRS data on the value of federal EITC claims in the state by the value of all U.S. EITC claims. This percentage is the share of the federal EITC cost attributable to that state. Then, to estimate the cost of the federal EITC in the state for a future year, apply that percentage to the Joint Committee on Taxation’s projected total cost of the federal EITC for the chosen year.

Step 2: Estimate the cost of the state’s EITC if all federal EITC claimants also received the state credit. Most states’ EITCs are a set percentage of the federal credit (see Appendix Table 1). To estimate the cost of a state EITC, multiply the federal EITC cost for the state (as determined in Step 1) by the percentage at which the state EITC is to be set. This calculation yields an estimate of what the state credit would cost in a given fiscal year if everyone who received the federal credit also received the state credit.

Step 3: Adjust the estimate to reflect that not all federal EITC claimants will claim the state credit. Many people who receive the federal EITC fail to claim their state’s EITC, especially in the first few years after a state enacts a credit, when awareness of it may be limited. In addition, some eligible families have the IRS compute their federal credit and may not receive a state EITC if the state does not compute the state credit amount for them. For these and other reasons, a refundable state EITC in its initial years will likely cost less than the full cost of the federal credit multiplied by the state percentage. To account for this, the cost estimate should be reduced by at least 10 percent.[35]

The Results

The last three columns of Appendix Table 2 show the estimated fiscal year 2023 costs of providing a refundable EITC for tax year 2019 set at 5, 10, or 20 percent of the federal credit. Other percentages may be calculated based on those numbers; for instance, a 15 percent credit would cost one-and-a-half times as much as a 10 percent credit.

End Notes

[1] Hye Jin Rho, Hayley Brown, and Shawn Fremstad, “A Basic Demographic Profile of Workers in Frontline Industries,” Center for Economic and Policy Research, April 7, 2020, https://cepr.net/a-basic-demographic-profile-of-workers-in-frontline-industries/.

[2] National Women’s Law Center, “Women in the Low-Wage Workforce by State,” February 2018, https://nwlc.org/wp-content/uploads/2018/06/women-in-low-wage-workforce-by-state-2018-1.pdf.

[3] National Women’s Law Center, “A Year of Strength and Loss,” March 2021, https://nwlc.org/wp-content/uploads/2021/03/Final_NWLC_Press_CovidStats.pdf.

[4] Low wages are defined here as $12.00 or less per hour. See Jasmine Tucker and Julie Vogtman, “When Hard Work Is Not Enough: Women in Low-Paid Jobs,” National Women’s Law Center, April 2020, https://nwlc.org/wp-content/uploads/2020/04/Women-in-Low-Paid-Jobs-report_pp04-FINAL-4.2.pdf.

[5] Poverty-level wages are defined here as $11.70 or less per hour. Economic Policy Institute Data Library, Poverty-Level Wages, http://www.epi.org/data/#/?subject=povwage&g=*&r=*.

[6] Center for Migration Studies, “State-Level Unauthorized Population and Eligible-to-Naturalize Estimates,” http://data.cmsny.org/state.html.

[7] Molly Kinder and Martha Ross, “Reopening America: Low-wage workers have suffered badly from COVID-19 so policymakers should focus on equity,” Brookings, June 23, 2020, https://www.brookings.edu/research/reopening-america-low-wage-workers-have-suffered-badly-from-covid-19-so-policymakers-should-focus-on-equity/.

[8] Erica Williams, Samantha Waxman, and Julian Legendre, “State Earned Income Tax Credits and Minimum Wages Work Best Together,” CBPP, updated March 9, 2020, https://www.cbpp.org/research/state-budget-and-tax/state-earned-income-tax-credits-and-minimum-wages-work-best-together.

[9] Economic Policy Institute, “The Productivity-Pay Gap,” updated August 2021, http://www.epi.org/productivity-pay-gap/.

[10] Eric Gartland, “2019 Income-Rent Gap Underscores Need for Rental Assistance, Census Data Show,” CBPP, September 18, 2020, https://www.cbpp.org/blog/2019-income-rent-gap-underscores-need-for-rental-assistance-census-data-show.

[11] Sonya Acosta, “Investing in Housing Vouchers Critical to Protecting Children From Hardship, Building More Equitable Future” CBPP, November 16, 2021, https://www.cbpp.org/research/housing/investing-in-housing-vouchers-critical-to-protecting-children-from-hardship.

[12] “Tracking the COVID-19 Recession’s Effects on Food, Housing, and Employment Hardships,” CBPP, updated February 10, 2022, https://www.cbpp.org/research/poverty-and-inequality/tracking-the-covid-19-economys-effects-on-food-housing-and.

[13] Institute on Taxation and Economic Policy, “Who Pays? A Distributional Analysis of the Tax Systems In All 50 States,” October 2018, https://itep.org/whopays/.

[14] California’s credit can be worth up to 85 percent of the federal credit for some families, but it follows a separate schedule that isn’t directly linked to the federal credit. See Appendix Table 1.

[15] Chuck Marr, “Instead of Boosting Working-Family Tax Credit, GOP Tax Bill Erodes It Over Time,” CBPP, December 21, 2017, https://www.cbpp.org/blog/instead-of-boosting-working-family-tax-credit-gop-tax-bill-erodes-it-over-time.

[16] CBPP Staff, “American Rescue Plan Act Will Help Millions and Bolster the Economy,” CBPP, March 15, 2021, https://www.cbpp.org/research/poverty-and-inequality/american-rescue-plan-act-will-help-millions-and-bolster-the-economy#tax.

[17] According to the Census’ Current Population Survey, over 7 million poor children had at least one working parent in 2020.

[18] Douglas J. Gagnon, Marybeth J. Mattingly, and Andrew Schaefer, “State EITC Programs Provide Important Relief to Households in Need,” University of New Hampshire Carson School of Public Policy, Winter 2017, https://scholars.unh.edu/cgi/viewcontent.cgi?referer=&httpsredir=1&article=1295&context=carsey.

[19] The average child poverty rate is 17 percent. The rate is 31 percent for Black children, 30 percent for American Indian children, 10 percent for Asian and Pacific Islander children, 10 percent for white (non-Hispanic) children, and 17 percent for children who are two or more races. Annie E. Casey Foundation, “2021 Kids Count Databook,” June 21, 2021, pp. 14, 15, https://assets.aecf.org/m/resourcedoc/aecf-2021kidscountdatabook-2021.pdf.

[20] Chuck Marr et al., “EITC and Child Tax Credit Promote Work, Reduce Poverty, and Support Children’s Development, Research Finds,” CBPP, updated October 1, 2015, https://www.cbpp.org/research/federal-tax/eitc-and-child-tax-credit-promote-work-reduce-poverty-and-support-childrens; Greg J. Duncan, Pamela A. Morris, and Chris Rodrigues, “Does Money Really Matter? Estimating Impacts of Family Income on Young Children’s Achievement with Data from Random-Assignment Experiments,” Developmental Psychology, June 2011, pp. 1263-1279.

[21] Michelle Maxfield, “The Effects of the Earned Income Tax Credit on Child Achievement and Long-Term Educational Attainment,” Michigan State University Institute for Public Policy and Social Research, November 14, 2013, http://ippsr.msu.edu/research/effects-earned-income-tax-credit-child-achievement-and-long-term-educational-attainment; Katherine Michelmore, “The Effect of Income on Educational Attainment: Evidence from State Earned Income Tax Credit Expansions,” November 2013, https://ssrn.com/abstract=2356444; Gordon Dahl and Lance Lochner, “The Impact of Family Income on Child Achievement: Evidence from the Earned Income Tax Credit,” American Economic Review, August 2012, pp. 1927-1956.

[22] Sam Waxman, Arloc Sherman, and Kris Cox, “Income Support Associated With Improved Health Outcomes for Children, Many Studies Show Refundable Tax Credits Among Programs That Boost Income,” CBPP, May 27, 2021, https://www.cbpp.org/research/federal-tax/income-support-associated-with-improved-health-outcomes-for-children-many.

[23] Leslie McGranahan and Diane W. Schanzenbach, “The Earned Income Tax Credit and Food Consumption Patterns,” Federal Reserve Bank of Chicago, Working Paper No. 2013-14, https://www.econstor.eu/bitstream/10419/96640/1/773868097.pdf.

[24] Marr et al., “EITC and Child Tax Credit Promote Work, Reduce Poverty,” op. cit.

[25] Wesley Tharpe, “States That Remove Barriers to Innovation Can Promote Wider-Shared Prosperity, Well-Being,” CBPP, December 9, 2020, https://www.cbpp.org/blog/states-that-remove-barriers-to-innovation-can-promote-wider-shared-prosperity-well-being.

[26] CBPP Staff, “American Rescue Plan Act Will Help Millions and Bolster the Economy.”

[27] Department of the Treasury, “Coronavirus State and Local Fiscal Recovery Funds Final Rule,” January 6, 2022, https://home.treasury.gov/system/files/136/SLFRF-Final-Rule.pdf. See p. 316 for Treasury guidance on the implementation of this rule.

[28] CT.gov, “Governor Lamont Directs Connecticut’s Earned Income Tax Credit for 2020 To Be Retroactively Enhanced to 41.5% Using Federal Coronavirus Relief Funds,” December 29, 2021, https://portal.ct.gov/Office-of-the-Governor/News/Press-Releases/2021/12-2021/Governor-Lamont-Directs-EITC-for-2020-To-Be-Retroactively-Enhanced.

[29] For more information about virtual and other VITA offerings during the pandemic, see Prosperity Now, “Alternative Tax Prep Options,” https://prosperitynow.org/alternative-tax-prep-options.

[30] InsiderNJ, “Ruiz Introduces Legislation to Create ReadyReturn Tax Return Program,” December 8, 2020, https://www.insidernj.com/press-release/ruiz-introduces-legislation-create-readyreturn-tax-return-program/.

[31] H.B. 252, 2022, 2022 Regular Session, (MD 2022), https://mgaleg.maryland.gov/mgawebsite/Legislation/Details/HB0252.

[32] For example, six Massachusetts organizations partnered to establish https://www.findyourfunds.org/, which helps connect people in the state to stimulus payments and tax credits.

[33] California Department of Community Services and Development, “Notice of Availability - 2021 CalEITC+ Education and Outreach,” 2021, https://www.csd.ca.gov/Pages/contractopportunities.aspx.

[34] Bloomberg Cities, “How Detroit is maximizing tax credits for the working poor,” April 18, 2018, https://bloombergcities.medium.com/how-detroit-is-maximizing-tax-credits-for-the-working-poor-93effaaefc17.

[35] Compared to the cost if every family claiming the federal credit also claimed the state credit, the actual cost of a newly enacted state EITC in its first year of availability was about 81 percent in Vermont, 83 percent in New York, 85 percent in Wisconsin, 88 percent in Oklahoma, 90 percent in Kansas and Minnesota, and 97 percent in Massachusetts. In the EITC’s second year of availability, the cost (relative to the full-participation cost) rose to 85 percent in Vermont, 90 percent in New York, and 93 percent in Minnesota.