A 20% Refundable EITC Will Boost Families Across the Commonwealth

The federal Earned Income Tax Credit (EITC) has helped boost the incomes of low-income working families for decades, making essentials like food and electricity more affordable and lifting some families out of poverty. From Wise to Fairfax to Newport News, the EITC is a critical tool to boost family resources in every corner of the state. Across Virginia, about 1 in 8 households who filed federal income tax returns (over 536,000) claimed the credit for 2022. Many also benefited from the state version of the EITC, which builds on the federal credit’s success.

Advocates and legislative champions have won much-needed improvements to the state EITC, including a recent win during the 2025 session that could put more money in the pockets of Virginia families who need it most. Now, if in the final budget approved by the governor, all families in Virginia claiming the federal EITC will be able to see 20% of its value when filing their 2025 state income tax returns.

While Virginia has long had a state EITC linked to the federal credit, for many years its value was restricted to the amount of income tax owed, i.e., it was nonrefundable. Many low-income families who owe little in income taxes, but pay high amounts in sales and property taxes as a portion of their income, missed out on critical support and the full value of the credit they earned. 

Here’s how it used to work (or, rather, didn’t work very well). The state EITC was set at 20% of the value of a family’s federal credit. That’s about $1,377 for a married couple with two children and an income of $30,000 a year when filing their 2024 tax return. However, since they were estimated to only owe about $334 in state income taxes, they would only get $334 of the credit under a non-refundable scenario. That meant that, in reality, they got less than 5% of their federal EITC value.

In 2022, state lawmakers made history when they established a new, refundable EITC option, equal to 15% of the federal credit. For the first time, low-income families in Virginia could claim a state EITC that is more than the amount of their state income tax bill. While less in total value than the 20% nonrefundable option, many families were able to get more back from the 15% refundable option. For our family of four, 15% of their federal credit is about $1,033, with $334 going toward their income tax liability and the remaining $699 refunded to them. In total, what this family gets from the state EITC more than triples with a 15% refundable credit. This means more resources to help put food on the table, pay rent, and keep the lights on.

Recognizing the importance of refundable credits in getting cash to families who need it the most, the General Assembly increased the state refundable EITC to 20% for tax years 2025 and 2026 in the budget it sent to the governor. This means that — if the budget is signed by the governor — every qualifying family in the state will be able to see 20% of their federal EITC. For our family of four, a 20% refundable credit would have meant $344 more when filing their 2024 state return compared to the 15% refundable credit. While we await final action on the budget, we hope to see this critical improvement move forward.

After this long-awaited improvement, there is still progress to be made. Despite efforts by the governor to make the improvements permanent, the refundable credit, regardless of federal match, is set to expire after tax year 2026. Further action by the legislature will be needed to make the critical refundable credit permanent.

Legislators could also improve the existing policy. Virginia could increase the federal match for families or address barriers that prevent people from accessing the federal EITC’s benefits. Working people without children receive lower EITC amounts, have to have lower incomes to qualify, and can only qualify at all if they’re between ages 25 and 64. Families who file and pay taxes but do not have a Social Security number do not qualify for the credit. Because the state EITC depends on the federal credit, the same barriers carry over to state income tax returns. New state legislative proposals could seek to address these barriers where the federal credit falls short.

We know from 2021 that when we expand and improve refundable tax credits we can lift up more families. Pandemic-era legislation temporarily lowered and removed age constraints for some people and improved the credit amount and access for workers without children. This helped more than 750,000 families in the state claim the EITC on 2021 federal returns. With the temporary improvements expired, this fell to 536,000 for 2022 returns. Leveraging the power of state policy and making improvements to the state credit can help to make up for the lack of action at the federal level. When we improve credits, we can make Virginia a more affordable place to live for more people. We should continue to build on and improve the EITC at the state level in the years to come.