California and Illinois Are Expanding This Important Tax Benefit for Families
In recent weeks, California and Illinois reached high profile budget deals in their state legislatures, and each of those bills included an expansion of the state Earned Incom Tax Credit (EITC). Hawaii’s state legislature passed a bill creating a new state EITC last month, which the governor is expected to sign today.
Last week, California Governor Jerry Brown signed the state’s 2018 budget, which includes an expansion of the state EITC. The expansion will expand the income limits for tax filers claiming the credit. The income limit will increase from about $14,000 to $22,300 for a married couple with two children. This expanded income limit slightly exceeds annual income for full-time workers earning the California minimum wage of $10.50 an hour. The credit will now also be available to Californians who report income solely from self-employment, which helps low-wage independent contractors who are frequently excluded from safety net programs. The bill also funds non-profits that are spreading the word about the state and federal EITCs. Californians eligible for the federal EITC leave $1.8 billion in potential benefits unclaimed each year. By allocating money to groups engaged in EITC outreach, the state is ensuring that eligible families don’t leave money on the table.
In Illinois, the state legislature reached a budget agreement after two years without a state budget. The budget raises the state income tax rate from 3.75 percent to 4.95 percent (this tax rate applies to Illinois tax filers at all income levels). Unfortunately, this rate increase will disproportionately hurt low-income families. In an effort to help low-income tax filers cope with the tax increase, Illinois expanded its EITC. Although the budget deal was vetoed by Illinois Governor Bruce Rauner, the state legislature overrode his veto last week. Low-income families in Illinois will now be eligible to receive a state EITC worth 18 percent of their federal credit, which is nearly double the previous Illinois state EITC that only gave families 10 percent of the federal EITC for which they were eligible.
In addition to California and Illinois expanding their EITCs, three states – South Carolina, Montana, and Hawaii – have enacted new states EITCs this year. Hawaii Governor David Ige is scheduled to sign Hawaii’s new EITC into law today. And many state legislatures have advanced bills to create new state EITCs or expand current ones. Considering that state EITCs strengthen state economies, help keep many families out of poverty, and support children during crucial years for development, creating and expanding EITCs is a step in the right direction for women and their families.