The federal earned income tax credit (EITC) provides a refundable credit to taxpayers based on their income and family circumstances (such as marital status and number of children). In 2022, 28 states and the District of Columbia offer a state EITC. Most state credits are calculated as a percentage of the federal credit.
- How do state EITCs differ?
- How are states reforming the EITC?
- Can states that don’t tax income offer an EITC?
- How did the American Rescue Plan affect state EITCs?
- Further reading
In 2022, 28 states and the District of Columbia offer a state EITC. Missouri, Utah, and Washington all recently passed legislation to create a state EITC and each state's credit takes effect in 2023. North Carolina eliminated its state EITC in 2014.
State EITCs are refundable, like the federal credit, in all but four states: Hawaii, Ohio, South Carolina, and Virginia. (The recently created state EITCs in Missouri and Utah are also nonrefundable.) If a refundable credit exceeds a taxpayer’s state income tax liability, the taxpayer receives the excess amount as a payment from the state. In that way, a refundable EITC can offset other state taxes paid by low-income working families, such as general sales taxes. In contrast, a nonrefundable EITC can only offset state income tax liability. As a result, a nonrefundable EITC provides far smaller benefits than a refundable credit for most EITC-eligible households because those household typically have little or no state income tax liability (i.e., they have low earnings and other deductions and credits reduce or eliminate the household’s taxable income before it can benefit from a nonrefundable EITC).
The District of Columbia and all but three states with a credit set their EITC as a percentage of the federal credit. In tax year 2022, state credits as a percentage of the federal EITC ranged from a refundable 3 percent in Montana to a nonrefundable 104.17 percent in South Carolina. However, because South Carolina’s credit is nonrefundable, most EITC-eligible households do not have the tax liability necessary to benefit from the state’s high match rate. As a result, despite the high percentage, South Carolina’s EITC is less generous than states with a lower match rate but a refundable credit. Among states with a refundable EITC, the highest match rates are in the District of Columbia (70 percent) and New Jersey (40 percent). Maryland's refundable credit for families with children is 45 percent for tax years 2020 through 2022, but in tax year 2023 the state's match rate is currently set to return to its previous rate of 28 percent.
State earned income tax credits as percentage of federal credit, tax year 2022
- California: calculated based on income
- Colorado: 25%
- Connecticut: 30.5%
- Delaware: 4.5% (or 20% nonrefundable)
- District of Columbia: 70% (100% for childless workers)
- Hawaii: 20% (nonrefundable)
- Illinois: 18%
- Indiana: 10%
- Iowa: 15%
- Kansas: 17%
- Louisiana: 5%
- Maine: 12% (25% for childless workers)
- Maryland: 45% (100% for childless workers) (or 50% nonrefundable)
- Massachusetts: 30%
- Michigan: 6%
- Minnesota: calculated as a percentage of income
- Missouri: 10% (nonrefundable) (starting 2023)
- Montana: 3%
- Nebraska: 10%
- New Jersey: 40%
- New Mexico: 20%
- New York: 30%
- Ohio: 30% (nonrefundable)
- Oklahoma: 5%
- Oregon: 9% (12% for families with dependents under the age of three)
- Rhode Island: 15%
- South Carolina: 104.17% (nonrefundable)
- Utah: 15% (nonrefundable) (starting in 2023)
- Vermont: 36%
- Virginia: 20% (nonrefundable)
- Washington: calculated as a percentage of income (starting in 2023)
- Wisconsin: 4% one child; 11% two children; and 34% three or more children
Sources: State tax codes and Tax Credits for Working Families
Wisconsin's EITC uses the federal rules but the match rate depends on the number of qualified children: it is 4 percent of the federal credit for filers with one child, 11 percent for filers with two children, and 34 percent for filers with three or more children. Wisconsin filers without qualifying children cannot claim the state credit. Similarly, Oregon follows the federal rules but offers a higher match rate for filers with children younger than three.
California’s EITC phases in dollar for dollar with the filers’ income until it hits a maximum value and then phases out completely at $30,000 of income (for all filing types), which is lower than the federal income eligibility levels. The maximum California EITC for filers with children is roughly 47 percent of the maximum federal credit, but the California and federal calculations differ.
Minnesota also uses a state-specific calculation for its EITC, but its rules more closely mirror the federal EITC calculations. The Minnesota EITC is roughly 37 percent of the federal EITC, but because it is not a simple match calculation, this estimated match varies for different households.
Washington, which does not levy an individual income tax, will give filers a set credit amount based on family size ($300, $600, $900, or $1,200) and then reduce the size of the credit based on the household’s federal income when its credit takes effect in 2023.
Increasingly, states are reforming state EITC rules so that state credits assist workers who largely miss out on the benefits of the federal EITC. Specifically, current state reforms typically benefit childless workers and undocumented workers.
Childless workers include both adults without children and those with children who live with (and are thus on the tax return of) another parent. Relatively few childless workers are typically eligible for federal EITC (because the income eligibility limit for these workers is lower than for workers with children) and those who are eligible receive only a fraction of the benefits available to workers with children. (The ARP tripled the federal EITC for childless workers but only for tax year 2021. See more information on these changes below.) Because most states provide their state credit as a match of the federal credit, state EITCs also provide limited benefits to childless workers.
However, in 2014, the District of Columbia increased its match for childless workers to 100 percent of the federal EITC (the match for filers with children was 40 percent at the time) and expanded the range of eligible income for these filers beyond the federal limits (so some childless filers were eligible for the District's EITC but not the federal EITC). Maine and Maryland have also increased their EITC match specifically for workers without qualifying children.
Additionally, Colorado, California, Maine, Maryland, Minnesota, New Jersey, and New Mexico have all made some childless workers younger than age 25 eligible for their state EITC. Only childless workers ages 25 to 64 are generally eligible for the federal EITC.
The federal rules also require every member of the filing household to have a valid Social Security number to claim the EITC. Filers without a Social Security number, typically undocumented workers, instead file taxes with an Individual Taxpayer Identification Number (ITIN) . For example, if the children in a household have a Social Security number but the parents file with an ITIN the household cannot claim the federal EITC. In 2020, California and Colorado became the first states to allow ITIN filers to claim their state’s EITC. Maine, Maryland, New Mexico, Oregon, and Washington all made ITIN filers eligible for their state EITC in 2021.
In 2021, Washington became the first state without an individual income tax to enact a state EITC. Once the credit takes effect in 2023, eligible Washington residents will file an application to the state for the credit along with their federal individual income tax return. Filers who are eligible for the federal EITC are also eligible for the Washington EITC, with the state credit amount based on the filer's income and family size.
The American Rescue Plan (ARP) included a temporary, one-year expansion of the federal EITC for childless workers. In tax year 2021, the ARP roughly tripled the maximum credit available to childless workers from $538 to $1,502, and increased the range of eligible income for these filers. These federal changes to the EITC also triggered automatic increases to the 25 state EITCs that are calculated as a percentage of the federal credit. This is particularly true in the District of Columbia, Maine, and Maryland, which provided childless workers a higher percentage match than other workers in their calculation of state EITCs in tax year 2021. The Tax Policy Center estimated that 4.6 million households will see an average state EITC increase of $153 in tax year 2021.
However, if Congress does not pass legislation to continue these rules into future tax years, the federal (and thus state) EITCs for childless workers will revert back to the smaller amounts and more limited income ranges in tax year 2022.
What is the earned income tax credit?
Tax Policy Center (2021)
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