November 8, 2018
Veterans and Their Families Deserve Full Credit
About 55,000 veteran and military families in Virginia currently receive the federal Earned Income Tax Credit (EITC). Virginia has its own state EITC that is available to families who receive the federal credit. Unfortunately, many working families in Virginia don’t get the full benefit of the state EITC because the state puts overly tight limits on it. The governor has proposed improving the credit by making it fully refundable. This change would make sure all of Virginia’s veteran and military families who receive the credit can get the full credit they’ve earned.
For many veteran and military households, working families tax credits like the EITC make a real difference. At the national level, the federal EITC and Child Tax Credit combined to lift about 140,000 veteran and military households out of poverty (about $25,000 for a family of four) and helped to support another 420,000 such families, according to 2014 data.
For working families, paying taxes and struggling to make ends meet, the EITC helps them cover the basics – groceries, transportation, child care, and utility bills. Research shows that the positive impact of the credit can last a lifetime, particularly for children in families who receive the EITC. And it helps to offset not only the income tax but also the additional taxes these families pay at a disproportionately high rate compared to higher income households.
The EITC is a pro-work and pro-family tax credit. For next year’s tax filing season, the income cut off for the EITC for a married family with three children is just under $55,000. A refundable state EITC represents an important step to helping working families and their communities. Targeting a tax cut to low- and moderate-income working families through a refundable state EITC means that more will be spent in local communities, providing an economic boost to these families and the community as a whole.
Virginia law allows some National Guard service members and reservists to choose to claim state income subtractions for service pay rather than the EITC on their Virginia taxes. The subtraction for National Guard members maxes out at $3,000, while the subtraction for reservists on extended active duty equals $15,000 (and it is phased down dollar-for-dollar by the amount of their military basic pay that exceeds $15,000). However, most Virginia military and veteran families do not qualify for these pay subtractions. Making the earned income tax credit refundable will help the families who do not qualify for the subtraction, as well as providing an additional – and possibly more financially beneficial – option for families who do qualify for the subtraction.
Tax credits for working families are one of the most effective policies available. A refundable EITC is the right thing to do for our veterans, their families, and the commonwealth.
Budget & Revenue