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.
Fourteen states have enacted a child tax credit in addition to the federal credit. Some states’ CTCs are refundable. Some state have included children with an individual taxpayer identification number (ITIN).
Sources:
NCSL: Economic Mobility Enacted Legislation Database
NCCP: Early Childhood Profiles
ZTT: Pathways to Prosperity: Promoting Economic Security for Families with Infants and Toddlers
Institute for Family Studies: Five Pro-Family Priorities for the 118th Congress and Beyond
NCSL: Child Tax Credit Enactments
BPC: State Child Care Tax Supports for Businesses and Parents (search for your state)
Urban: Three Lessons for Policymakers Designing a State Child Tax Credit and Constructing a Child Tax Credit That Fits Every State
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. States can choose to make state EITCs available to immigrant tax filers using ITIN numbers. 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
PN3 Policy Impact Center: State Earned Income Tax Credits
NCSL: Economic Mobility Enacted Legislation Database
Schuyler Center (NY): New York’s Children Are the Heart of Our State – Where Are They in the Final Budget Negotiations?
BPC: State Child Care Tax Supports for Businesses and Parents (search for your state)
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
Brookings Institution: With federal child care legislation abandoned, it’s up to states to help working families
BPC: State Child Care Tax Supports for Businesses and Parents (search for your state)
Tax Credit Outreach
States can reduce barriers to claiming income tax credits by:
- Supporting free tax preparation through VITA (Volunteer Income Tax Assistance) by providing matched funding and assisting VITA sites with community outreach.
- Pre-filling and sending tax forms for families likely to be eligible for EITCs, based on wage, withholding, and other tax information from employers.
- Educating the public through newspapers and social media, on the radio, and by other means.
- Conducting targeted outreach to families already enrolled in economic security programs like SNAP, Medicaid, and WIC, through notices and reminders and by connecting enrolled families to VITA sites.
- Requiring employers to share information about the federal and state EITC and CTC with employees through sending or posting notices.
- States with such requirements for either the federal or state EITC include California, Colorado, Illinois, Louisiana, Maryland, New Jersey, Oregon, Texas, and Virginia.
- For additional reforms to improve low-income people’s access to easy and affordable tax preparation, check out this brief from the Tax Equity Funders Network and Prosperity Now.
Source:
Young Child Tax Exemption
- Exempting a portion of income from taxation for families with young children
- Consolidating young child tax exemptions and converting them to tax credits that reach as many families as possible (more equitable and farther-reaching solution).
Examples: Wisconsin, Michigan, Massachusetts, West Virginia, Maine, and others. Income eligibility, dependent eligibility, and benefit amount vary widely across the states. See Niskanan Center brief linked below for a 50-state map and scroll down on the main page for state-specific briefs.
Source:
Niskanan Center: The State of our Families: Child and dependent tax benefits in the states
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
- Conducting a tax code equity assessment to see how the overall tax code impacts low-income families
Sources:
PN3 Policy Impact Center: Beyond Tax Credits: State Tax Codes Can Help or Hurt Working Families
Institute on Taxation and Economic Policy: State Income Taxes and Racial Equity: Narrowing Racial Income and Wealth Gaps with State Personal Income Taxes
Center on Budget and Policy Priorities: States’ Recent Tax-Cut Spree Creates Big Risks for Families and Communities
NCSL: What Happens When States Ditch Income Tax for Sales Tax?
Grocery Tax Reforms
- Reducing or eliminating sales taxes on groceries, or partially offsetting them with a tax credit
There are 12 states that still have grocery taxes in place for food intended for home consumption.
Source:
CBPP: States Can Thoughtfully Implement Grocery Tax Reforms to Help Families and Improve Equity
CBPP: AL and UT Join Growing Number of States Moving to Reduce or Eliminate Sales Tax on Groceries
Kiplinger article: The Food Tax: Grocery Tax by State
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:
