January 20, 2023
Earned Income Tax Credit Supports Virginia’s Working Families: Updated District and Locality Data
Originally published on Jan. 27, 2022; Updated Jan. 20, 2023
In 2022, legislators created a refundable option for the state Earned Income Tax Credit (EITC) by including it in the adopted budget. This change helps provide larger tax refunds to working families across the commonwealth, helping them put food on the table, keep up with utility bills, and afford other necessities. Policies like strengthening Virginia’s EITC 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. Prior to the 2022 tax year, the only state EITC option available to families was a nonrefundable credit that matched up to 20% of their federal credit but could not exceed a family’s state income tax liability. Because Virginia’s state EITC was not refundable, most families who qualified for the credit didn’t receive the full amount of the state EITC. The new refundable state EITC option matches up to 15% of the federal credit but can exceed the amount a family owes in income taxes. While many families still do not receive the full 20% benefit offered by the state, a refundable state EITC provides them a larger tax refund and helps to offset sales, excise, and property taxes paid, helping to address Virginia’s upside-down tax code.
The new EITC option helps to increase the effectiveness of the state EITC, with particular impacts for racial equity. The state’s Commission to Examine Racial and Economic Inequity in Virginia Law 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 recent tax policy changes that primarily benefit middle-income tax filers, such as increasing the state standard deduction.
Virginia policymakers can further improve the state EITC and support working families by making the state credit refundable up to 20% of the federal credit.
Click below to see how many families receive the federal EITC by legislative district and locality. While some of these families may already receive the maximum benefit of the state EITC, many of these families would benefit from increased refundability in the state EITC.