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Tax Credits and Policies

This policy inventory compiles some tax policies that states can choose to put into place to support economic security for families with young children.

State Child Tax Credit

  • Enacting a child tax credit at the state level

States can set their own eligibility criteria and credit amounts and can make the credit refundable or not.

Seven states have enacted a child tax credit in addition to the federal credit, and nine more have introduced legislation to do so. Two states’ CTCs are refundable.

Sources:

NCSL: Economic Mobility Enacted Legislation Database

NCCP: Early Childhood Profiles

ZTT: Pathways to Prosperity: Promoting Economic Security for Families with Infants and Toddlers

State Earned Income Tax Credit

  • Enacting an earned income tax credit (EITC)/working families tax credit at the state level

States can set their own eligibility criteria and credit amounts and can make credit refundable or not. As New America highlights in the New York case study below, implementation matters.

Many states have state-level EITCs; 23 states offer refundable credits. 

Case Study:

New York (from New America)

Sources:

NCSL: State EITC Enactments (full list of states with state EITCs)

NCCP: Early Childhood Profiles

NCSL: Economic Mobility Enacted Legislation Database

State Dependent Care Tax Credit

  • Enacting a dependent care tax credit at the state level

States can set their own eligibility criteria and credit amounts and can make credit refundable or not.

Twenty-five states have a dependent care tax credit for parents, and another four states allow parents a tax deduction for some child care expenses. Fourteen states offer a refundable dependent care tax credit.

Sources:

NCCP: Early Childhood Profiles

Committee for Economic Development: Child Care State Tax Credits

Poverty Income Tax Exemption

  • Eliminating personal income tax requirements for single-parent families of three below the federal poverty level

Forty-three states have such an exemption.

Source: NCCP: Early Childhood Profiles

Progressive Tax System

  • Enacting an equity-centered personal income tax code through a system of graduated tax rates that asks more of high-income families

Source:

Institute on Taxation and Economic Policy: State Income Taxes and Racial Equity: Narrowing Racial Income and Wealth Gaps with State Personal Income Taxes

Grocery Tax Reforms

  • Reducing or eliminating sales taxes on groceries, or partially offsetting them with a tax credit

There are 13 states that still have grocery taxes in place.

Source:

CBPP: States Can Thoughtfully Implement Grocery Tax Reforms to Help Families and Improve Equity

Owed Child Support Offsets/Deductions

  • Ensuring children receive any child support payments deducted from tax refunds

For families who receive TANF benefits, states can elect to use a tax offset option to give families who are owed child support any child support that the IRS deducts from the non-custodial parent’s tax refund due to past-due child support. If states don’t elect this option, the funds that are deducted are split between the federal and state governments as repayment for previous TANF cash payments paid to the family.

Five states have this policy in place

Source:

CBPP: States Should Take Steps Needed to Direct Child Support Payments Deducted From Tax Refunds to Children