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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 in supporting working families with the lowest incomes, in part, because it is refundable so families receive the full value of the credit they earned. And recent improvements to the state’s version of the credit will boost its effectiveness.

In 2022, legislators improved the state’s version of the credit by making it partially refundable. Prior to this decision, many families missed out on the full value of their credit. A partially refundable credit will put money back into the pockets of eligible families who need it most.

An improved state credit also helps 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. According to a January 2021 report, the contrast was pretty stark. Households making under $22,000 a year paid, on average, 9.9% of their income in state and local taxes. But households that earned at least $587,000 a year paid only 7.1% of their income in state and local taxes. The improved state Earned Income Tax Credit, along with the federal Earned Income Tax credit (EITC), will help balance out this unequal contribution.

Claiming Full Credit

Making the state credit partially refundable will 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. Making further improvements to the credit, by making it fully refundable and allowing access to more families, will be critical to supporting Virginia families and our communities.

See how a refundable EITC could help families with various incomes

Use the calculator to see how the partially refundable state credit will help families with low and moderate incomes!

*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

wodicka@thecommonwealthinstitute.org

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