Many States Have Created or Expanded Tax Credits to Help Families Get By

Several states have created or improved tax credits this year — particularly state earned income tax credits (EITCs) and state child tax credits (CTCs) — to support families struggling to afford the basics as costs rise amid the pandemic. Because families with high incomes are more likely to have access to tax credits, pay a smaller share of their income in taxes than those with lower incomes, the EITC and CTC make the tax code fairer, bolster equity, and improve families’ economic securityBoth now and in future.

Tax credits for families with low incomes allow them to purchase housing, food, utilities, and other necessities. Research shows that additional income from tax credits is associated with reduced poverty, improved child and maternal health and students’ educational achievement, and can boost local and state economies. Tax credits are also available. advance racial and gender equityMost states tax Black, Indigenous, or Latinx families. higher rates than white families on average — the result of historical and ongoing bias and discrimination. These equity-boosting tax credits are especially important today, given people of color, immigrants, women, and individuals with low incomes were particularly hit hard by the pandemic’s economic downturn.

Washington, D.C., and seven states recently expanded or enacted EITCs. Take, for example:

  • Illinois increased its state EITC from 18 percent to 20 percent of the federal credit and extended it to immigrants who file taxes with an Individual Tax Identification Number (ITIN), as well as to people aged 18-24 and 65 and over who don’t claim children on their tax return. EITCs are now available in eight states and D.C. that include ITIN filers.
  • Utah Recently, an EITCA new tax law provides a significant boost to many families and workers by providing a 15 percent federal credit. Families with low incomes are not eligible for the full credit. Other aspects of the tax plan tilt the balance towards wealthy people in the state. sizable revenue lossesThese could cause long-term damage to services.
  • Virginia It will provide a larger creditFamilies with low earnings can choose between two credit options: a 15 percent fully refundable and a 20 percent nonrefundable version.
  • Washington, D.C. Approved its fiscal year 2023 budgetThe credit will be available to all who have an ITIN and will make the EITC more inclusive for immigrants. The change will be beneficial to up to 5,100 households, and 7,500 children. The lawmakers are expanding economic opportunities to many low-paid people by extending tax credits for ITIN filers. essential workersimmigrants which in turn makes the economy more competitive and more equitable for all.

Three states created new tax credits for child care, which are all available to all families, regardless of income. California also increased its Young Child Tax Credit. These developments are crucial given the expiration the federal Child Tax Credit. This credit made it easier for millions to care for their children and kept millions of kids above the poverty line. Congress should reconsider and make permanent the federal CTC improvements as soon as possibleStates should also continue to develop and improve their CTCs.

  • CaliforniaIt has been expanded Young Child Tax Credit (a component of the state’s CalEITC) so that families with children under age 6 and without earnings can receive the $1,000 credit.
  • New JerseyActed a new CTCThis will be worth up $500 per child under 6 years old and is expected reach more than 250,000 households.
  • New MexicoActed a new CTCUp to $175 per child aged under 17 years, which will benefit more than 530,000 children.
  • VermontCreated by new CTC worth $1,000 maximum per child age 5 and under — the largest stand-alone state CTC enacted to date. The credit is estimated that it will help over 34,000 families with children.

Some states offered additional tax credits to offset the costs of the pandemic, recognizing the unique challenges it presented. New York was one example. supplemental paymentsWorth 25 percentIts EITC, and up to 100 per cent of its Empire State Child Credit. Oregon issued $600 paymentsFor state EITC recipients ConnecticutAnd Rhode IslandBoth offered $250 CTC rebates to children 18 and under, up to three children. While these kinds of targeted one-time payments are helpful, lawmakers in these states can build on the momentum by expanding their existing, permanent credits or — in states without permanent credits — creating them.

Many states also increased other credits this year, including those that help families buy groceries or offset some of their property taxes. This is especially important for renters and homeowners who are struggling to pay rising rents. These families pay a higher percentage of their incomes for groceries and home taxes than those in wealther households. This highlights the upside-down nature state tax systems. Targeted tax credit programs make state tax codes more equitable. They are especially useful when it comes to helping people with disabilities. food and energy prices are risingFamily budgets are under pressure. Idaho, for example, increased the value of its grocery tax creditFrom $100 to $120 in Connecticut and Massachusetts increased its property tax creditResidents who meet certain income requirements can be eligible for increased eligibility and a $200-300 reduction.

States should increase their support for families in times of pandemic, as they are facing uncertain economic prospects. Tax credits can be created and improved to reduce inequalities and work towards shared prosperity over the long-term.