Wednesday, March 15, 2000 12:01 a.m. (ET)

CONTACT:  Jim Jaffe, Michelle Bazie
Toni Kayatin, (202) 408-1080

State contacts

Poor Families in Most States Pay Less Income Taxes Than in the Past,
But Substantial Burdens Remain

Report - (264K PDF - 61pp.)

State Fact Sheets

Twenty of the 42 states with income taxes require families to pay taxes on earnings even if their incomes are below the poverty line, according to a new study by the Center on Budget and Policy Priorities. But 22 other states now exempt such working-poor families with three or four members from the income tax.

Since 1996 four states have stopped taxing the incomes of poor families, and eleven others have brought their thresholds up closer to the poverty line than they were in 1991.

Still, very poor families with incomes below half of the poverty line remain liable to taxation in four states. Thirteen other states levy income tax on families with full-time minimum-wage earnings — several thousand dollars below the poverty line.

The annual report assesses the impact of each state's income tax on low-income families with children for tax year 1999, the tax returns families are currently filing. It focuses on income tax thresholds, the income level at which a family would begin to owe state income tax. The report also evaluates trends in state income tax policies since 1991.

Tax year 1999 marks the first year in which the states' income tax thresholds are, on average, above the poverty line. The average of the states' tax thresholds for a family of four has risen from $11,736 in 1991, about 15 percent below the poverty line, to $17,117 for tax year 1999, just over the poverty line. The 1999 poverty line is $17,028 for a family of four and $13,290 for a family of three.

"It's encouraging to see states adopting tax relief for the poor," said Nicholas Johnson, co-author of the report. "But given the strength of state finances and the importance of assisting the working poor, low-income tax relief is less widespread than one might expect."

Many states are urging more families to make the transition from welfare to work, and welfare caseloads are declining. Recent evidence from several states shows that many welfare recipients have earnings little higher than the minimum wage and few benefits. A number of studies show that welfare recipients who find jobs have average earnings of $2,000 to $3,000 per quarter, or $8,000 to $12,000 per year. Many earn less.

"Many parents are working long hours for little money as they struggle to move out of poverty," said Robert Zahradnik, co-author of the report. "Targeting income tax relief to the poor is a simple and effective way to support those parents and help them meet the costs of child care, transportation and other work-related expenses."

States with below-poverty thresholds

Taxes paid by low-income families in the 20 states with below-poverty thresholds push them deeper into poverty. The report finds:

Some states relieving taxes on the poor; others allow taxation to increase

Several states that tax the poor did significantly raise their 1999 thresholds above 1998 levels, but the thresholds remain below the poverty line. In Delaware and New Jersey, the increases were enacted as parts of multi-year reductions, each of which are expected to eliminate income taxes on poor families in future tax years. Hawaii's 1999 tax threshold also increased by a substantial amount, although it remains below the poverty line.

By contrast, a few states have allowed taxes on the poor to increase.

States with above-poverty thresholds

By contrast, the report finds a substantial number of states assisted low- and moderate-income working families by levying no income tax until a family's income was well above the poverty line or by offering refundable tax credits for low-income families.

Tax relief policies

The report finds that states use a variety of methods to relieve income tax burdens on the poor. Most of the 22 states that do not tax the working poor for tax year 1999 allow relatively large deductions from income through personal and dependent exemptions and standard deductions. In addition, 28 states have adopted measures that specifically target tax relief on low-income families.

The design of tax relief can affect near-poor families as well. For example, the District of Columbia exempts poor families from the income tax, but has an unusual tax credit available only to the poor that leaves families with incomes 25 percent above the poverty line facing one of the nation's highest taxes ($906). By contrast, most states that exempt the poor phase in taxes gradually on families with income above the poverty line.

Although most state economies expanded through the 1990s and more than three-fourths of states with income taxes have cut those taxes significantly in the last four years, somewhat fewer states made it a priority to end the taxation of the poor. Many of the states with the largest income tax cuts in recent years chose to cut top tax rates or cut all tax rates in ways that provide a disproportionate benefit to higher-income taxpayers. Six of the states that have enacted personal income tax rate cuts in recent years still have income tax thresholds below the poverty line, and have not adopted measures to raise those thresholds significantly in the future. Those states are Hawaii, Michigan, Ohio, Oklahoma, Oregon, and Utah.

State Income Tax Thresholds for Two-Parent Families of Four, 1999
Poverty line (estimated): $17,028


State Threshold  




1 Alabama $4,600 21 Iowa $17,300
2 Kentucky 5,200 22 District of Columbia


3 Illinois 6,600 22 South Carolina 18,200
4 Virginia 8,200 24 Idaho 18,400
5 Montana 9,100 25 Mississippi 18,600
6 Indiana 9,500 25 Nebraska 18,600
7 New Jersey 10,000 27 North Dakota 18,700
7 West Virginia 10,000 28 Wisconsin 18,800
9 Hawaii 11,000 29 Maine 20,200
10 Michigan 11,800 30 Massachusetts 20,500
11 Ohio 12,300 31 New Mexico 20,600
12 Louisiana 12,700 32 Kansas 20,900
12 Oklahoma 12,700 33 New York 23,000
14 Missouri 13,900 34 Arizona 23,600
15 Oregon 14,400 35 Connecticut 24,100
16 Georgia 15,300 36 Colorado 24,600
17 Utah 15,500 37 Maryland 24,800
18 Arkansas 15,600 38 Rhode Island 25,400
19 Delaware 16,100 38 Vermont 25,400
20 North Carolina


40 Minnesota 26,000
      40 Pennsylvania 26,000
      42 California 35,500
Average Threshold 1999 $11,575 Average Threshold 1999 $22,155
Amount Below Poverty $5,453 Amount Above Poverty $5,127
Note: A threshold is the lowest income level at which a family has state income tax liability. In this table thresholds are rounded to the nearest $100. The 1999 poverty line is a Census Bureau estimate based on the actual 1998 line adjusted for inflation. The threshold calculations include Earned Income Tax Credits, other general tax credits, exemptions, and standard deductions. Credits that are intended to offset the effects of taxes other than the income tax or that are not available to all low-income families are not taken into account.

Source: Center on Budget and Policy Priorities

State Income Tax at Poverty Line for Two-Parent Families of Four, 1999
State Income Tax
1   Kentucky $17,028   $555
2   Alabama 17,028   423
3   Hawaii 17,028   382
4   Indiana 17,028   341
5   Illinois 17,028   313
6 Virginia 17,028 311
7 Arkansas 17,028 287
8 West Virginia 17,028 272
9 Oregon 17,028 256
10 Michigan 17,028 230
11   Montana 17,028   227
12   Oklahoma 17,028   208
13   New Jersey 17,028   168
14   Ohio 17,028   108
15   Louisiana 17,028   98
16 Missouri 17,028 68
17 Delaware 17,028 50
18 Utah 17,028 38
19 Georgia 17,028 37
20 North Carolina 17,028 2
21   Arizona 17,028   0
21   California 17,028   0
21   Connecticut 17,028   0
21   District of Columbia 17,028   0
21   Idaho* 17,028   0
21 Iowa 17,028 0
21 Maine 17,028 0
21 Mississippi 17,028 0
21 Nebraska 17,028 0
21 North Dakota 17,028 0
21   Pennsylvania 17,028   0
21   Rhode Island 17,028   0
21   South Carolina 17,028   0
34   Maryland 17,028   (20)
35   New Mexico 17,028   (70)
36 Kansas 17,028 (215)
37 Colorado 17,028 (243)
38 Massachusetts 17,028 (285)
39 Wisconsin 17,028 (400)
40 New York 17,028 (490)
41   Vermont 17,028   (713)
42   Minnesota 17,028   (1,222)

*The income tax threshold for a two-parent family of four in Idaho was $18,400 in 1999 but there was a $10 permanent building fund tax on each filing household.
Source: Center on Budget and Policy Priorities

State Income Tax Burdens on Low-Income Families in 1999
State Group Contact List

Arise Citizens' Policy Project

Kimble Forrister
Press Conference on March 15, 2000, 11:00am, State House
Kentucky Youth Advocates

Doug Hall

Kentucky Task Force on Hunger
Anne Joseph

Oregon Center for Public Policy

Michael Leachman
503-873-1201, ext. 332
Children's Action Alliance

Elizabeth Hudgins
Maryland Budget & Tax Policy Institute

Steve Bartolomei-Hill
Pennsylvania Partnerships for Children

Diane McCormick
Arkansas Advocates for Children & Families

Richard Huddleston
TEAM Education Fund

Jim St. George
617-426-1228 ext. 102
The Poverty Institute

Nancy Gewirtz and Kate Brewster
401-456-8239, 401-456-8512
California Budget Project

Jean Ross
Michigan League for Human Services

Sharon Parks
Utah Issues

Gina Cornia
Colorado Fiscal Policy Institute

David Hogan
Minnesota Budget Project

Nan Madden
Coalition for the Homeless

Sue Capers
Connecticut Voices for Children

Shelley Geballe

Jennifer A. Hill
314-361-3400 or 636-949-9339
Affiliated Construction Trades Foundation

Steve White
United Vision for Idaho

Judy Brown
Association for Children of New Jersey

Jeannette Russo
West Virginia Council of Churches
Rev. Nathan Wilson
Voices for Illinois Children

Brian Matakis
Fiscal Policy Institute

Frank Mauro and Trudi Renwick
Wisconsin Budget Project

Jon Peacock
608-284-0580 ext. 307
Indiana Coalition on Housing & Homeless Issues

Beryl Cohen
North Carolina Budget & Tax Center

Dan Gerlach
Kansas Catholic Conference

Sister Therese Bangert
Community Action of Tulsa

Steve Dow

The Center on Budget and Policy Priorities is a nonpartisan research organization and policy institute that conducts research and analysis on a range of government policies and programs. It is supported primarily by foundation grants.