Earned Income Tax Credit Supports Virginia’s Working Families: Updated District and Locality Data

In December 2021, then-Gov. Northam proposed making Virginia’s state Earned Income Tax Credit (EITC) partially refundable. If enacted, this change would help provide larger tax refunds to working families across the commonwealth, which would help them put food on the table, keep up with utility bills, and afford other necessities. During the COVID-19 health and economic crisis, direct income support has been an effective tool in supporting families and our economy. Policies like strengthening Virginia’s EITC would help working people in Virginia provide for themselves and their families.

The Virginia EITC is a state version of the federal EITC, a tax credit available to working families with incomes below certain levels, and the credit amount varies by filing status (single or married joint), family size, and income. About 600,000 working families in Virginia receive the federal EITC, and they are also able to receive a state EITC that matches up to 20% of their federal credit. Because Virginia’s state EITC is not refundable, most families who qualify for the credit do not receive the full amount of the state EITC. A refundable state EITC would provide them a larger tax refund and help to offset sales, excise, and property taxes paid, which contribute to Virginia’s tax code being upside down.

The current restrictions limit the effectiveness of the state EITC, with particularly negative consequences for racial equity. The state’s Commission to Examine Racial and Economic Inequity in Virginia Law recently recommended that the state enact a partially refundable EITC, noting that the policy “would help to increase incomes for working families in Virginia, particularly for Black and Latinx families who, and despite working, are more likely to be excluded from the current nonrefundable credit due to having low incomes.”

Refundable credits like the EITC are critical for reaching families with low incomes, who would see little to no benefit from other proposed tax policies that would primarily benefit middle-income tax filers, such as increasing the state standard deduction.

During the 2022 General Assembly session, Virginia policymakers have an opportunity to enact a partially refundable EITC and support working families.