More States Are Helping Low-Income Families With New and Expanded Tax Credits – ITEP

13 plus DC states created or expanded state CTCs or EITCs this year, helping create fairer state tax systems

WASHINGTON DC: In the 2022 state legislative sessions, lawmakers across the country advanced tax policies that will boost the economic security of millions of low- and middle-income working families through new Child Tax Credits (CTCs) and earned income tax credits (EITC). A pair of new guidance notes released today by the Institute on Taxation and Economic Policy (ITEP) details progress made by states and outlines best practices for crafting inclusive and effective tax credits for the future. . (Click on here and here for memoirs.)

“State tax credits like the CTC and EITC are among the most effective tools in the policy toolkit for lawmakers looking to help families struggling to put food on the table. , pay their bills and make ends meet,” said Aidan Davis, ITEP’s director of state policy and author of the memoir. “Adopting or expanding these credits is a surefire way to reduce racial and wealth inequality, alleviate some of the regressivity of state and local tax systems, and help families meet their basic needs. .”

State CTCs gain momentum after federal credit expansion in 2021 proved hugely effective in reducing child poverty, reducing it by more than 40% before it is allowed to expire in 2022 In the absence of federal action to reinstate these reforms, state legislators are increasingly enacting these important appropriations that can boost economic security and reduce child poverty. In 2022, three states created new state CTCs and one significantly expanded its existing appropriation. Several states have also taken ad hoc measures to help children and families.

  • New Mexico, New Jersey and Vermont created new CTCs
  • California continuously expands its CTC
  • New York provided one-time CTC enhancement
  • Connecticut and Rhode Island provided one-time tax refunds for children

States have been creating and expanding their own EITCs for a few decades, but the pace of change has accelerated in recent years. This trend continued in 2022, thanks to the nine states and the District of Columbia creating or improving their EITCs this year.

  • Utah adopted a non-refundable EITC of 15%
  • C., Hawaii, Illinois, Maine, Vermont and Virginia expanded their existing credits
  • Connecticut, New York and Oregon provided one-time increases to their EITC-eligible populations

Nowadays, 31 states plus DC offer EITCs while 10 states offer multi-million dollar CTCs. The scope and magnitude of these credits vary widely from state to state. The guidance notes contain best practice recommendations for state legislators, such as making the EITC fully refundable with a large maximum credit and creating a fully refundable CTC that is not tied to the federal credit and is defined per child, not per family.

Both of these tax credits are important policies to advance racial equity through the tax code. That’s because they increase after-tax income and economic security for a diverse group of families, but when designed well, they can be especially important for Blacks, Hispanics, Indigenous peoples and other people. of color facing the economic hardship created by systematic racism.

In addition to helping working families pay for child care, health care, housing, food, and other necessities, state EITCs and CTCs help improve the fairness of tax systems. state and local reversed. Unlike federal taxes, state and local taxes are regressive, forcing low- and middle-income families to pay a greater share of their income in taxes than wealthier taxpayers. Tax credits for low-income families and working families are among the most effective ways to offset this imbalance in state tax codes.


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