State Earned Income Tax Credits
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). Some states offer their own EITC, typically as a percentage of the federal credit.
In 2017, 25 states and the District of Columbia (DC) offered their own EITC. Washington also has a credit, but it has never been implemented or funded. Hawaii and South Carolina will offer an EITC in 2018, and Montana will add one in 2020. North Carolina eliminated its EITC in 2014.
DC and all states with a credit set their EITC as a percentage of the federal credit, except for Minnesota, which calculates its credit as a percentage of income. In 2017, state credits ranged from 3.5 percent of the federal EITC in Louisiana to 40 percent of the federal credit in DC. California’s credit is 85 percent of the federal credit but is based on a smaller earnings range than the federal EITC. The state will expand its credit in 2018.
Like the federal credit, state EITCs are refundable in all but four states (Delaware, Ohio, Oklahoma, and Virginia). If a refundable credit exceeds a taxpayer’s state income tax, the taxpayer receives the excess amount as a payment from the state. In that way, a refundable EITC can offset other state taxes. A nonrefundable EITC can only offset state income taxes but no other state-level taxes paid by low-income working families.
Washington is currently the only state that does not tax income but has enacted a state EITC. However, its credit has never been funded or implemented. If it were funded, eligible Washington residents would file an application for the credit along with the previous year’s federal return (e.g., an application in 2017 would be for the federal EITC granted for the 2016 tax year).
Upward Mobility and State-Level EITCs Evaluating California’s Earned Income Tax Credit
Kim S. Rueben, Frank Sammartino, and Kirk J. Stark (2017)
Refundable Credits: The Earned Income Tax Credit and the Child Tax Credit
Elaine Maag (2017)
Federal and State Income Taxes and Their Role in the Social Safety Net
Elaine Maag (2015)