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April 12, 2017

For Hard-Working Virginians, the EITC Makes the Difference

Wondering what to do with that tax refund this year? For a lot of hard-working Virginians struggling to get by, that money is going to groceries, fixing the car, or paying the rent. Fortunately, the federal Earned Income Tax Credit (EITC) provides much-needed relief to millions of low-wage workers and their families. In fact, over 600,000 of Virginia’s working households benefit from this credit.

The EITC lets hard-working Americans keep more of their income to feed their families, afford transportation to and from work, pay their utility bills to keep the lights on, the water running, and invest in their own potential and that of their children. And the EITC is particularly critical for helping hard-working families in Virginia’s struggling rural southside and southwest communities, as well as the state’s oldest cities.

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The EITC not only encourages work and boosts wages for working people with low incomes, it also represents a crucial investment in the next generation. On a range of indicators like maternal health and children’s birth weight, academic achievement, and college attendance, the EITC makes a real difference for working families by improving health and educational outcomes and creating opportunity, particularly for low-income mothers and children. Studies show that boosting the income of these families has resulted in higher rates of employment and wages for the young children of those families once they themselves reach adulthood. The EITC punches way above its weight.

Given the evidence, it is encouraging that Virginia has pursued its own version of this policy to supplement the federal EITC and support working families. Virginia’s state EITC allows Virginia households who receive the federal EITC to get a break on state income taxes as well. However, unlike the federal EITC and similar credits in many other states, Virginia’s state EITC is not refundable. In other words, if the amount of a family’s tax credit exceeds their state income tax bill, they don’t get refunded the difference.

Although the current state EITC reduces the state income taxes of Virginia’s low-income families, we know that poorer households pay a sizable portion of their incomes in other state and local taxes. In fact, low-income families pay more in state and local taxes as a percentage of their incomes than wealthier households. A refundable state EITC would help level the playing field for Virginia’s low-income working families.

You can read more about Virginia’s EITC and see how making it refundable would provide an even greater boost to families who need it most with our easy-to-use calculator.

As tax day approaches, we celebrate the successes of the EITC in helping hard-working Virginians make ends meet. We should also support efforts to make it even more effective in helping workers and creating a fairer tax system.

Budget & Revenue

Chris Wodicka

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