Understanding the Earned Income Tax Credit and How Virginia Can Improve Its State Credit

A targeted working families tax credit can help families earning low wages meet basic needs. For families struggling to make ends meet, these tax credits make a difference in terms of putting food on the table, affording child care, and staying current on utility bills. These tax credits usually take the form of an earned income tax credit (EITC).

But Virginia’s state EITC is not refundable — meaning not all families receive the full value of the credit they earned.

The Earned Income Tax Credit helps working families keep more of what they earn. The federal EITC was started in 1975 and has enjoyed bipartisan support ever since.

It lifts 5.8 million people, including 3 million children, out of poverty each year by providing a tax credit based on income and family size that gets applied to a family’s tax bill. Anything left over after the credit gets refunded to them, just like any other tax refund.

The good news: Virginia has a state version of the EITC for certain tax filers. It was created as part of the 2004 tax reform package, and is set at 20 percent of the federal EITC.

The bad news: it isn’t refundable so the state does not give all families the full value of their credit. Making the state EITC refundable, as it is in 23 other states and the District of Columbia, would return about $250 million each year to the pockets of hard-working Virginians and spread that money throughout the local economy.

Or click through to learn about the EITC and how Virginia can give a boost to our families and communities.