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Bursting with cash, more than two dozen states passed tax breaks in 2021, including Earned Income Tax Credits, or EITCs, a boon for low-to-moderate incomes.
Generally, working families with children earning about $42,000 to $57,000 are eligible for state EITCs, depending on marital status and family size, according to the Center on Budget and Policy Priorities, l The largest benefit usually goes to those earning between $11,000 and $25,000.
“State EITCs are much cheaper than rate cuts because a limited number of people benefit from them,” said Richard Auxier, senior policy associate at the Urban-Brookings Center for Tax Policy.
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In 2021, Colorado, Connecticut, Delaware, District of Columbia, Indiana, Maine, Maryland, Minnesota, Missouri, New Jersey, New Mexico, Oklahoma, Oregon and Washington have added or expanded CIEs, with some taking effect for future tax years. , according to the Center for Tax Policy.
While the federal EITC is refundable, meaning it reduces tax bills or provides reimbursement regardless of liability, some state-level EITCs are non-refundable, only covering taxes owed.
“The Earned Income Tax Credit is a great tool that states can use to help low-income workers because they can piggyback on federal government work,” Auxier said.
Workers can receive the federal EITC based on their income, graduating above certain income levels, and state-level tax relief is usually a percentage of the federal credit, under the same eligibility rules. .
“They just copy and paste the federal rules, paste them into the state tax code, and then give a percentage of the amount of money they got from the federal credit,” he said. declared.
However, every state is different and the latest round of changes may vary, Auxier said.
For example, refundable credits can range from 3% in Montana to 50% in Maryland, according to the IRS. There is also a New York earned income tax credit of up to 5% of the federal credit.
Still, policy experts say these state-level changes can offer much-needed relief at tax time.
Low-wage workers have been among the hardest hit during the pandemic, said Samantha Waxman, senior policy analyst at the Center on Budget and Policy Priorities.
“These people were more likely to lose their jobs and income due to Covid-19,” she said. “Or if they work as frontline essential workers and have been able to keep their jobs, they tend to have a higher risk of infection.”
Retail, healthcare, and food service are among the most common industries for workers eligible for the EITC.
“Overall, this is a relatively well-targeted form of tax relief,” said Katherine Lughead, senior policy analyst at the Tax Foundation. “It is means-tested in a way that benefits those who need it most, while also encouraging labor force participation.”
Federal boost to the EITC for 2021
The U.S. bailout extended the federal EITC through 2021, allowing more childless workers to qualify. The boost also lifted age limits, making credit accessible to younger workers.
President Joe Biden has called for making these changes permanent in the U.S. Families Plan, which could provide $12.4 billion to families in 2022, affecting 19.5 million workers, according to research by the Institute on Taxation. and Economic Policy. However, the status of this proposal is unclear.