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Good News for Working Families: South Carolina and Montana Enact State Earned Income Tax Credits

On Wednesday, South Carolina’s state legislature overrode a veto by Governor Henry McMaster to create a nonrefundable state Earned Income Tax Credit (EITC) worth 125 percent of a tax filer’s federal credit. The credit was part of a larger bill that raised the gas tax to pay for infrastructure investment in the state. To ensure that the gas tax would have a less regressive impact, the state legislature included an EITC. Tax filers can start claiming the credit in tax year 2018. However, the credit will phase in, starting at 20.83 percent and increasing by 20.83 percent each year until the full 125 percent credit becomes available in tax year 2023.

South Carolina State Representative Gilda Cobb-Hunter, the lead sponsor, has been pushing the state to create an EITC for over a decade. When asked about the bill in April, she said “I love it because the one thing I can say about this bill is that there is tax relief for people who really need it and that group is working families in this state.” The sponsor in the state Senate, Marlon Kimpson, supported the EITC as part of a broader range of anti-poverty initiatives.

While this is great news for working families in South Carolina, this credit could be more robust. If the credit were refundable, it would reach more families and have a bigger impact by including those with little or no tax liability. Hopefully the state legislature will consider making the credit refundable in the future, so it will be available to all working families in South Carolina.

And yesterday, Montana Governor Steve Bullock signed a bill creating a new state EITC. It had broad bipartisan support in both houses of Montana’s legislature, after a years-long education and advocacy campaign. Montana’s EITC, which will become effective in tax year 2019, is refundable and is worth 3 percent of the federal EITC. Montana State Representative Tom Jacobson was the sponsor of the bill, which had originally proposed a credit worth 10 percent of the federal credit. However, after the bill passed the state House in March, he said: “This gets our feet on the ground. We can work on the percentage in future years.” The credit is estimated to provide help to nearly 80,000 working families in Montana.

This makes South Carolina the 27th state with a state EITC and Montana the 28th. EITCs have been popular in state legislatures this year, likely because they are one of the most effective anti-poverty programs and also increase the number of people in the workforce. The Hawaii state legislature has also passed a new state EITC, but it awaits a signature from their governor (who is expected to sign the bill). Once Hawaii’s EITC is signed into law, there will be 29 states, including the District of Columbia, with an Earned Income Tax Credit, which is good news for working families.