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 calculated as a percentage of the federal credit.
In 2018, 28 states and the District of Columbia offered their own EITC. Montana has an EITC but it does not take effect until 2020. Washington has a credit, but it has never been implemented or funded. North Carolina eliminated its EITC in 2014.
Like the federal credit, state EITCs are refundable in all but six states (Delaware, Hawaii, Ohio, Oklahoma, South Carolina, 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.
The District of Columbia 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 2018, state credits ranged from 3.5 percent of the federal EITC in Louisiana to a nonrefundable 125 percent of the federal credit in South Carolina. The highest refundable credit is in the District of Columbia (40 percent).
The District of Columbia also offers 100 percent of the federal EITC to earners without qualifying children, and expanded the range of eligible income beyond the federal limits. The maximum federal credit for earners without a qualifying child is far lower ($519) than the max credit for earners with at least one child ($3,461), and the eligible income rage for is also far smaller for earners without qualifying children. There have been several proposals to expand the federal credit for earners without qualifying children, but none were included in the 2017 tax bill. The District of Columbia was the first state or city to expand the benefit for this group. In 2018, Maryland passed legislation that extends eligibility for the state's credit to earners without a qualifying child who are between the ages of 21 and 24 years old (workers without qualifying children must be between the ages of 25 and 65 years old to claim the federal credit).
Wisconsin's EITC 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. California’s credit is 85 percent of the federal credit but is based on a smaller earnings range than the federal EITC. In 2018, the state will expand the income range and allow previously ineligible self-employed workers to qualify for the credit.
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 based on the federal EITC granted for the 2016 tax year).
What is the earned income tax credit?
Tax Policy Center Briefing Book
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)