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A Refundable State EITC is a Boost to Working Families: See How Much

The Earned Income Tax Credit (EITC) is a commonsense way to support families with low to moderate incomes. Over 600,000 of Virginia’s working families currently receive the federal Earned Income Tax Credit (EITC), which helps families to put food on the table, keep up with utility bills, and afford other necessities. The federal EITC is one of the most effective tools to bring families above the poverty line.

An improved state credit could help to address Virginia’s upside-down tax code. Working families with low incomes in Virginia pay more in state and local taxes as a share of their income than high-income Virginians. And the contrast is pretty stark. Households making under $22,000 a year pay, on average, 9.9% of their income in state and local taxes. But households that earn at least $587,000 a year pay only 7.1% of their income in state and local taxes.

The state Earned Income Tax Credit, along with the federal Earned Income Tax credit (EITC), helps balance out this unequal contribution. They both can reduce or eliminate the amount of income taxes owed by a person with low income. But, unlike the federal credit, if your state credit is more than the amount of income taxes you owe, you can’t get the rest in a tax refund to help offset other state and local taxes you pay. That means working families with low incomes are stuck paying a greater share of their income in state and local taxes like sales and property taxes than wealthier households.

Claiming Full Credit

Making the state credit refundable would dramatically enhance the difference the credit makes to families with low incomes. In addition to being the country’s most successful and proven anti-poverty tool for children, lifting over 3 million kids out of poverty each year, it also helps low-income families get the resources they need to get to their jobs, keep the lights and heat on, and put food on the table.

See how a refundable EITC could help families with various incomes

Use the calculator to see how the state EITC helps people in Virginia and how making it refundable would help even more! 

*The calculator does not include Virginia’s Spouse Tax Adjustment (STA), which reduces state taxes by up to $259 for married joint filers if each spouse received income during the taxable year. As a result, the calculator may understate the benefit of refundability for those tax filers.

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Some notes about the calculator: This simple calculator is for estimation purposes only. Calculations used are for tax year 2022 and are based solely on the information you enter and current tax law.

The American Rescue Plan Act included several improvements to the federal EITC for tax year 2021, such as increased credit eligibility and amounts for filers without qualifying dependents. The calculator does not account for these temporary improvements. Congress is considering legislative proposals to extend these improvements into future years. If those are signed into law, this calculator will be updated (noted Feb. 2022).

Chris Wodicka

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