STATE EARNED INCOME TAX CREDIT
WHAT IS AN EARNED INCOME TAX CREDIT AND WHY IS IT IMPORTANT?
The Federal EITC is a Refundable Tax Credit for Low-Income Workers
Households with at least one working adult between the ages of 25 to 64 can receive the federal EITC either as a reduction in taxes owed or as a refund if the household has no federal tax liability (or if the credit value exceeds taxes owed).1 The amount of the federal EITC increases as a percentage of earned income until a plateau income range is reached, after which the credit amount decreases slowly as income continues to rise, until the credit phases out completely.2 The federal credit amount varies by family size, marital status, and income level.
The State EITC is an Additional Credit Often Based on a Percentage of the Federal EITC
For states with an EITC, the state credit is typically calculated as a percentage of the federal EITC, though a few states have unique credit structures.3 The value and administration of the state EITC is determined by each state, including whether the credit is refundable or nonrefundable. States most often finance their state EITCs through general revenue.4
The EITC Helps Millions of Workers Each Year, but Working Parents Benefit the Most
In 2023, 23 million workers and families received about $57 billion in federal EITC benefits.5 Most recipients of the federal and state EITCs are parents with children. Because many families with low incomes are headed by working single mothers and women of color, the EITC is expected to improve outcomes for these families more than for other families.6
A small credit is available to working individuals without dependents and to noncustodial parents, but it is harder to qualify for the EITC as an adult without custodial children because income limits are set much lower. As a result, 97% of EITC benefits go to families with children in the home, including many single-parent families.7
The EITC Lifts Millions of Families Out of Poverty
The federal EITC lifts up to 6 million people out of poverty in a given year, including 3 million children.8,2 The average federal EITC amount received per tax filer was $2,541 in 2023.9 The average state EITC receipt is not reported in a central national source, as a result of differences in administration across states, but a 2021 study found that the average state amount was $265.10 That amount represents over 90% of a 40-hour week’s salary at the federal minimum wage of $7.25 per hour. In tax year 2024, the maximum value of a state EITC equal to 10% of the federal EITC would be worth $421 for a family with one child, $696 for a family with two children, and $783 for a family with three or more children.
Research finds that administrative costs of the federal EITC are relatively low compared to programs such as the Supplemental Nutrition Assistance Program and Temporary Assistance for Needy Families. Given that most state credits are a percentage of the federal credit, administrative costs for states are also comparatively low which makes EITCs one of the most cost-effective anti-poverty policies in the US.11 However, these policies, along with state child tax credits, can work together to lift families with children out of poverty.
Search the Prenatal-to-3 Policy Clearinghouse for an ongoing inventory of rigorous evidence reviews, including more information on the state earned income tax credit.
WHAT IMPACT DOES A STATE EITC HAVE AND FOR WHOM?
A refundable state EITC of at least 10% of the federal EITC promotes healthier and more equitable birth outcomes, increases parents’ workforce participation, and improves household economic security, with the greatest effects for single mothers and their children. The 10% threshold is based on comprehensive reviews of available rigorous causal studies. Additional research is needed to understand the impact of more generous credits.
The State EITC Reduces Racial Disparities in Birth Outcomes, but State Policy Choices Could Increase Access and Further Improve Equity
Rigorous research shows that the state EITC can reduce racial disparities in birth outcomes12 and poverty rates.13 In one study, Black mothers in states with an EITC saw greater reductions in the likelihood of low birthweight for their infants (compared to states without an EITC) than did White mothers. Given pre-existing disparities in healthy births between Black mothers and mothers of other races, this result demonstrates the potential for the EITC to promote better health outcomes among Black infants.12
However, uptake of the EITC is not equal across racial and ethnic groups, and differences in access may prevent the credit from promoting equity in family outcomes. For example, research demonstrates that Hispanic families have lower EITC uptake rates than families of other races and ethnicities.14 Some scholars suggest that Hispanic families may face language or administrative barriers or may fear immigration enforcement, and these factors may deter uptake even when families are fully eligible.15
As a step toward reducing these barriers, 11 states (California, Colorado, the District of Columbia, Illinois, Maine, Maryland, Minnesota, New Mexico, Oregon, Vermont, and Washington) currently extend EITC eligibility to filers with an Individual Taxpayer Identification Number (ITIN), which means that workers who are undocumented or otherwise ineligible for a Social Security Number may still claim EITC benefits. Additionally, eight states (California, Colorado, Illinois, Maine, Maryland, Minnesota, New Jersey, and New Mexico) currently provide EITC benefits to younger (ages 18 to 24) filers.
State decisions such as offering the credit to immigrants of various legal statuses or workers of younger age ranges, conducting greater tax preparation outreach, and ensuring greater access for noncustodial parents may increase equitable access to the EITC and improve outcomes for more children and families.16
For more information on what we know and what we still need to learn about the state earned income tax credit, see the evidence review on the state earned income tax credit.
WHAT PROGRESS HAVE STATES MADE IN THE LAST YEAR TO ADOPT AND FULLY IMPLEMENT A REFUNDABLE STATE EITC OF AT LEAST 10%?
Montana Began Implementing a Refundable EITC Worth 10% of the Federal EITC This Tax Year
One new state—Montana—began fully implementing a refundable EITC of at least 10% of the federal credit effective tax year 2024. In 2023, Montana enacted legislation to increase the value of its refundable state EITC from 3% to 10% of the federal credit beginning in tax year 2024. With the addition of Montana, as of tax year 2024, 23 states fully implement a refundable state EITC worth at least 10% of the federal credit.
Nearly Half of States Introduced Legislation This Session to Create or Expand a State EITC
In total, 21 states introduced legislation to establish or expand a state EITC in the past year. States considered legislation ranging from the introduction of an EITC in states without one, to expanding the generosity of and eligibility for existing credits.
3 States Increased EITC Generosity This Year, 8 States Considered Increases
Colorado enacted legislation this session to modify the state’s EITC, increasing generosity in tax year 2024 and increasing planned modifications to the credit in subsequent years. Prior to this session, Colorado’s state EITC was set to be 38%, 25%, and 20% of the federal credit in tax years 2024, 2025, and 2026, respectively. Legislation passed this session increased the value of the credit to 50%, 35%, and 25% of the federal credit for those years. Although the credit declines in value each year, this legislation increases the generosity of the credit from what had been previously scheduled over the next 3 years. The legislation also dictated a formula to allow for increases in generosity of up to 50% of the federal credit for tax years beyond 2026 based on yearly fiscal forecasts.
Montana and Rhode Island also implemented an increase in their state EITCs this year, both of which increased due to legislation passed in 2023. Montana’s credit increased from 3% to 10% of the federal credit and Rhode Island’s credit increased from 15% to 16% of the federal EITC.
In addition, eight states (California, Nebraska, New Jersey, New York, Rhode Island, Vermont, Washington, and Wisconsin) introduced legislation to increase the generosity of their existing state EITCs. Seven of these states already provide refundable credits worth at least 10% of the federal EITC. Wisconsin’s credit is only 4% of the federal credit for families with one dependent. For families with two and three or more dependents, Wisconsin’s credit is 11% and 34% of the federal credit, respectively. However, none of these states successfully enacted their proposed increases.
4 States Considered Establishing a New Refundable EITC Worth 10% of the Federal EITC
Four states without an existing state EITC (Florida, Mississippi, Pennsylvania, and Tennessee) introduced legislation this session to establish a refundable state EITC of at least 10% of the federal credit. However, none of the bills to establish credits in these states passed. Mississippi proposed legislation to create a refundable EITC worth 10% of the federal credit effective for tax year 2024, and Pennsylvania considered legislation to establish a refundable credit worth 25% of the federal EITC. Pennsylvanians would have been able to choose between the new credit or the state’s current tax forgiveness program.
Notably, the other two states, Florida and Tennessee, do not have an income tax, which is the typical mechanism states use to fund and administer state EITCs. Florida and Tennessee both proposed to offer rebates on other state taxes to families with low or moderate incomes, which would function as a state EITC.
Florida’s legislation would have created a Working Floridian’s Tax Rebate Program effective tax year 2025 to provide families a credit worth up to 20% of the federal EITC they receive. Tennessee’s proposal would have been available beginning in tax year 2024. The credit would have varied based on a family’s income, but the maximum credit would have been $300 for a family with no children, $600 for a family with one child, $900 for a family with two children, and $1,200 for a family with three or more children. In both states, state agencies would have been required to develop a process for families to apply for the credit.
Tennessee’s proposed credit is similar to the structure of Washington’s Working Families Tax Credit. Washington is currently the only state without an income tax that implements the equivalent of a state EITC. Without a state income tax, Washington’s credit is a refund of retail and use taxes that families fill out an application to receive.
3 States with Nonrefundable Credits Considered Making Credits Refundable
Among the four states with existing fully nonrefundable EITCs, three states—Missouri, Ohio, and Utah—introduced legislation to make their credits refundable. Missouri (10%) and Utah (20%) would have made their credits fully refundable. Ohio would have added an option for families to claim a refundable credit equal to 12% of the federal EITC for families with dependents under the age of 3 and 9% for all other taxpayers and allowed families to choose between this option and the nonrefundable credit equal to 30% of the federal EITC. If the legislation had passed, all three states would have been above the threshold of at least 10% and refundable. The legislation in Ohio was heard in committee, but none of the other bills moved this session.
2 States Introduced Legislation to Establish New EITCs That Were Nonrefundable or Below 10% of the Federal EITC
Two additional states without existing state EITCs (North Carolina and West Virginia) introduced legislation to establish credits that would not have met the threshold of being refundable and worth at least 10% of the federal EITC. North Carolina’s proposal would have reestablished a refundable state EITC worth 5% of the federal credit, which would have matched the value of North Carolina’s previous state EITC that was eliminated a decade ago. West Virginia’s proposed credit would have been worth 38% of the federal EITC but would not have been refundable. The bills did not pass in either state.
7 States Considered Expanding Eligibility for Their State EITC
This session several states introduced legislation to expand eligibility for their state EITC to one or more additional populations. Massachusetts, New York, and Washington introduced legislation to make younger workers ages 18 to 24 eligible. Massachusetts, also sought to expand eligibility to filers with an ITIN, along with New Jersey and Virginia. New Jersey and Wisconsin introduced legislation to make survivors of domestic abuse who are married but filing separately eligible for the credit. Finally, Maryland legislators attempted to expand eligibility by increasing the income thresholds at which the credit phases out beyond the federal limits for families without qualifying dependents. None of these bills passed this session.
For more information on the state policy levers to help maximize the effectiveness of a state EITC see our State Policy Lever Checklists.
2 States Also Took Steps to Reduce Administrative Burden and Improve Outreach
Maryland enacted two laws to improve outreach to families that are likely eligible for the state EITC, to educate them about the program and support them in filing tax returns. Moving forward, the Department of Health and Human Services will be required to provide information about the state EITC to families that participate in Medicaid, CHIP, and other health programs. Legislators also appropriated additional funds to support the Tax Clinics for Low-Income Marylanders Fund to provide grants for organizations that operate free tax filing clinics in the state. Colorado similarly enacted legislation to establish a pilot program to assist Coloradans who did not file a federal income tax return but who were likely eligible for the federal and state EITC to file returns in subsequent years using a prefilled form.
For more information on each state’s progress on state EITCs, find our individual state summaries under Additional Resources below (and here).
HOW DOES THE STATE EITC VARY ACROSS STATES?
EITC Value, Refundability, and Eligibility Varies Across States
Currently, the levels of the refundable state EITCs for families with children range from 4.5% of the federal credit in Delaware to 70% in the District of Columbia. Of the 28 states that have a refundable state EITC, five states (Delaware, Louisiana, Minnesota, Oklahoma, and Wisconsin) have credits that, for at least some families with children, are below the threshold of 10% of the federal credit, which is the minimum percentage that research shows is necessary to impact family wellbeing.
Three states (California, Minnesota, and Washington) have refundable earned income tax credits that are not based on a percentage of the federal credit. To compare the value of these states’ credits to other states, we calculated the value of the state credit as a percent of the federal credit for a taxpayer with one dependent whose income is $12,390. The income level aligns with the lowest income necessary to receive the maximum federal credit.
California’s refundable credit varies depending on income, and the very lowest income households receive 85% of the federal EITC, but the maximum state credit in our comparison to other states is 14% of the federal credit. Minnesota’s refundable EITC is based on a percentage of income and does not vary by number of dependents. Tax filers with one dependent receive approximately 8% of the federal credit, based on our comparison. Because Washington does not have a state income tax, the refundable EITC, called the Working Families Tax Credit, provides a tax rebate between $50 and $1,255 depending on the number of dependents. The state credit is equivalent to 15% of the federal EITC, based on our comparison. Washington is the only state without a state income tax to implement an EITC.
Two other states have refundable EITCs that are based on the federal credit, but the value varies based on household size. Oregon’s refundable EITC is 12% of the federal credit for families with children under age 3 and 9% for all other filers, and in Wisconsin, the percentage of the federal credit increases from 4% for one child to 34% for three or more children.
Currently, only four states have a nonrefundable state EITC. The highest nonrefundable EITC rate is 125% of the federal credit in South Carolina. Of the 19 states that do not have any state EITC, eight have no state income tax, the typical mechanism used to finance and provide administrative structure for a state EITC.
States also vary in the additional populations who are eligible for the credit. Eleven states currently offer EITCs to workers with an ITIN, and eight states currently expand eligibility for their state credits to younger tax filers (ages 18 to 25). Only New York and the District of Columbia currently offer the same credits for both custodial and noncustodial parents.
Although individuals must file as “married filing jointly” to receive the federal EITC, Washington enacted legislation in 2023 to expand eligibility to taxpayers who file as “married filing separately” for the first time in tax year 2024.
States also vary in how they choose to fund their credit. For example, Washington does not have a state income tax, therefore state leaders drew from other retail and use tax revenues to provide the state EITC, called the Working Families Tax Credit, when it was newly implemented in 2022.19
HOW ARE STATES IMPLEMENTING OTHER TAX CREDITS, SUCH AS THE CHILD TAX CREDIT?
Similar to the EITC, there are other tax credits that taxpayers may receive to reduce their tax liabilities and provide a refund, and the child tax credit is the most common. Although distinct credits, taxpayers typically receive these benefits as one payment—for example, if entitled to a refund, a taxpayer receives one lump-sum refund, perhaps partially due to the EITC and partially due to other credits; these amounts are often indistinguishable to the recipient at that time. In recent years, many states have created and expanded state-level child tax credits (CTCs), often in addition to state EITCs, to further support families with children.
As of October 1, 2024, 16 states have implemented a state CTC and all but two—Arizona and Idaho—of those states also provide a state EITC. In most states with both an EITC and CTC, the credits were enacted independently and are calculated separately. Minnesota, however, revised the structure of the state’s existing EITC when adopting a state CTC in 2023. In doing so, the state reduced the state EITC and tied the two credits, so the value of the combined credits is phased down jointly as income increases. The new structure resulted in families with children receiving substantially more in total credits. Additionally, Illinois’s state CTC is calculated as percentage of the state EITC, which is unlike most states which set the state CTCs as a fixed per-child credit.
Because of the differences in how most state CTCs and state EITCs are structured, states may design CTCs to target different families than state EITCs, such as families with little to no earned income who are ineligible for or receive a small credit from the EITC.
Because more than half of states with a CTC began implementing their credit in the past 5 years, and several other credits have been expanded in that timeframe, researchers have not yet had the opportunity to rigorously study the impacts of these larger credits on child and family outcomes. Temporary modifications to the federal CTC, through the American Rescue Plan Act in 2021, however, lifted an estimated 2.1 million children out of poverty.17 Research has shown the expanded federal credit, which provided up to $3,600 annually for each child ages birth to 5, reduced food insecurity and improved parents’ mental health.18,19 As states continue to implement and expand credits, further causal research is needed to establish the impacts of state CTCs alone and in conjunction with other credits on families.
State CTC Value, Refundability, and Eligibility Varies Across States
Similar to state EITCs, state CTCs can be refundable or nonrefundable. Twelve states have implemented a refundable state CTC and four states have implemented a nonrefundable state CTC, as of tax year 2024. In 2025, the District of Columbia will be the 17th state to implement a CTC.
Unlike state EITCs, few state CTCs are calculated as a percentage of the federal credit and are instead provided as a per-child credit that may be phased down as income increases. Illinois, New York, and Oklahoma are the only states that calculate their state CTCs as a percentage of another state or federal credit. New York and Oklahoma base their credits in part on the federal child tax credit. Although the federal credit is available for children under age 17, many states further target their credits to younger children.
As additional states have introduced more generous credits, the maximum value of credits has increased over the past several years. For many years New York provided the most generous credit, which maxed out at around $330 per child. As of tax year 2024, however, the maximum value of state CTCs range from $100 per child in Arizona to $1,750 per child in Minnesota. However, income eligibility limits and phase out structures impact which and how many families receive the full value of the credit. For example, in Maryland, only families with incomes below $15,000 are eligible for the $500 per child credit.
3 States Enacted New State Child Tax Credits This Session
Over the past year, 18 states introduced, and three enacted, legislation to establish a state CTC. Illinois enacted legislation as part of the state’s budget package to establish a refundable CTC for families with children under age 12 beginning in tax year 2024. Families will be able to claim an additional credit worth 20% of Illinois’ state EITC (roughly $300 to $600) in tax year 2024 and 40% for tax year 2025 and beyond. The District of Columbia also enacted legislation as part of its budget process to create a refundable CTC worth up to $420 per child under age 6 that will be available in tax year 2025.
Colorado also enacted a new refundable state credit called the Family Affordability Tax Credit this year, in addition to its existing EITC and CTC. Families will be able to claim up to $3,200 for each child under age 6 and $2,400 for children ages 6 through 16 effective beginning in tax year 2024, on top of the state CTC that is worth up to $1,200 per child.
2 States Took Action to Expand Existing State CTCs
Five states with existing credits (California, Maryland, Minnesota, New Jersey, and Utah) introduced, and two (Minnesota and Utah) enacted, legislation to expand age eligibility for their existing credits. Minnesota expanded eligibility to include 18-year-olds (previously only included children under age 18), and Utah expanded eligibility from children ages 1 to 3 years old to children ages 1 to 4 years old.
ADDITIONAL RESOURCES
NOTES AND SOURCES
- Tax Policy Center. Urban Institute & Brookings Institution. (2021). What is the earned income tax credit? https://www.taxpolicycenter.org/briefing-book/what-earned-income-tax-credit
- Center on Budget and Policy Priorities. (2019). Policy basics: The earned income tax credit. https://www.cbpp.org/sites/default/files/atoms/files/policybasics-eitc.pdf
- California, Minnesota, and Washington have unique structures distinct from that of the federal credit.
- Center on Budget and Policy Priorities. (2019). Policy basics: The earned income tax credit. https://www.cbpp.org/sites/default/files/atoms/files/policybasics-eitc.pdf
- Internal Revenue Service (2024). EITC fast facts. https://www.eitc.irs.gov/partner-toolkit/basic-marketing-communication-materials/eitc-fast-facts/eitc-fast-facts
- National Center for Children in Poverty. (n.d.). United States: Demographics of low-income children. http://www.nccp.org/profiles/US_profile_6.html
- Tax Policy Center. Urban Institute & Brookings Institution. (2021). What is the earned income tax credit? https://www.taxpolicycenter.org/briefing-book/what-earned-income-tax-credit
- Maag, E. & Airi, N. (2021). Options to increase the EITC for workers without children at home. Tax Policy Center (Urban Institute & Brookings Institution). https://www.urban.org/sites/default/files/publication/103594/options-to-increase-the-eitc-for-workers-without-children-at-home.pdf
- IRS. (2023). Statistics for Tax Returns with the Earned Income Tax Credit (EITC). https://www.eitc.irs.gov/eitc-central/statistics-for-tax-returns-with-eitc/statistics-for-tax-returns-with-the-earned-income
- Collin, D., Shields-Zeeman, L., Batra, A., White, J., Tong, M., & Hamad, R. (2021). The effects of state earned income tax credits on mental health and health behaviors: A quasi-experimental study. Social Science & Medicine, 276, 1-7. https://doi.org/10.1016/j.socscimed.2020.113274 [State EITC Evidence Review Study QQ]
- Williams, E., Waxman, S., & Legendre, J. (2020). States can adopt or expand earned income tax credits to build a stronger future economy. Center on Budget and Policy Priorities. https://www.cbpp.org/research/state-budget-and-tax/states-can-adopt-or-expand-earned-income-tax-credits-to-build-a
- Komro, K. A., Markowitz, S., Livingston, M. D., & Wagenaar, A. C. (2019). Effects of state-level earned income tax credit laws on birth outcomes by race and ethnicity. Health Equity, 3(1), 61–67. https://doi.org/10.1089/heq.2018.0061 [State EITC Evidence Review Study II]
- National Academies of Sciences, Engineering, and Medicine. (2019). A roadmap to reducing child poverty. Washington, DC: The National Academies Press. https://doi.org/10.17226/25246. [State EITC Evidence Review Study ZZ]
- Thomson, D., Gennetian, L., Chen, Y., Barnett, H., Carter, M., & Deambrosi, S. (2020). State policy and practice related to earned income tax credits may affect receipt among Hispanic families with children. Child Trends. https://www.childtrends.org/publications/state-policy-and-practice-related-to-earned-income-tax-credits-may-affect-receipt-among-hispanic-families-with-children
- Goldin, J. & Liscow, Z. Tax benefit complexity and take-up: Lessons from the earned income tax credit. 72 Tax Law Review 59 (2018). https://law.stanford.edu/publications/tax-benefit-complexity-take-lessons-earned-income-tax-credit/
- The Rockefeller Foundation. (2021). Thirteen-year effort to implement a Working Families Tax Credit ends in success. https://www.rockefellerfoundation.org/case-study/thirteen-year-effort-to-implement-a-working-families-tax-credit-ends-in-success/
- Burns, K. & Fox, L. (2023). The Impact of the 2021 Expanded Child Tax Credit on Child Poverty. United States Census Bureau. https://www.census.gov/library/working-papers/2022/demo/SEHSD-wp2022-24.html
- Shafer PR, Gutiérrez KM, Ettinger de Cuba S, Bovell-Ammon A, Raifman J. (2022). Association of the Implementation of Child Tax Credit Advance Payments With Food Insufficiency in US Households. JAMA Netw Open. http://doi.org/10.1001/jamanetworkopen.2021.43296
- Batra, A., Jackson, K., & Hamad, R. (2023). Effects of the 2021 Expanded Child Tax Credit on Adults’ Mental Health: A Quasi-Experimental Study. Health Affairs 42, No. 1. https://doi.org/10.1377/hlthaff.2022.00733
