Building on Momentum from Recent Years, 2018 Delivers Strengthened Tax Credits for Workers and Families

This blog has been updated to reflect policy changes in Massachusetts and Delaware.

This is the second post in a retrospective series of blogs reviewing major trends in state tax policy in 2018. You can find the first post on state responses to the federal tax bill here. Stay tuned… there’s more to come!

Despite some challenging tax policy debates, a number of which hinged on states’ responses to federal conformity, 2018 brought some positive developments for workers and their families. This post updates a mid-session trends piece on this very subject. Here’s what we have been following:

Seven Earned Income Tax Credit (EITC) improvements: The latest in California, Delaware, Louisiana, Maryland, Massachusetts, New Jersey and Vermont.

Lawmakers in both California and Maryland took steps to strengthen their state EITCs by making the credit available to additional workers. Maryland used some revenue gain from the federal tax cut to eliminate the state credit’s minimum age requirement—previously set at 25—to expand eligibility to younger workers without children in the home. In a similar move, lawmakers in California expanded income eligibility to childless workers between 18 and 24, and over 65. California also adjusted its state-level EITC income limits to reflect the state’s minimum wage increase to ensure that those working full-time for minimum wage are eligible to receive the credit. Maryland and California now join the District of Columbia and Minnesota in their expansion of the credit to younger workers.

Louisiana, Massachusetts, New Jersey and Vermont all increased the size of their EITCs this year. Louisiana, during its second special session (of three), upped its state’s EITC from 3.5 percent to 5 percent of the federal credit for tax years 2019 through 2025. In New Jersey, lawmakers as part of a contentious deal enacted a not-so-controversial EITC increase from 35 to 40 percent of the federal credit to be phased in by 2020. Lawmakers in Vermont increased their EITC, currently at 32 percent of the federal credit, to 36 percent while Massachusetts increased their EITC from 23 to 30 percent of the federal credit, up from 15 percent in 2015.

Delaware’s Gov. John Carney is expected to sign legislation that will make the state’s EITC refundable, switching from a 20 percent nonrefundable EITC to a 5.9 percent refundable credit. The shift will benefit the state’s lowest income workers and their families, those who earn too little owe state income taxes.

There were some missed opportunities, however. In Missouri, several versions of the state’s tax bill included a 20 percent nonrefundable EITC. However, the credit was ultimately not included. In South Carolina tax conformity debates, lawmakers considered fully enacting the state’s EITC in 2018 rather than on the current phased-in schedule. Yet, the state opted to maintain its existing tax code and revisit these questions next year.

The creation of a state-level Child and Dependent Care Tax Credit in New Jersey and an expansion in Colorado, plus Child Tax Credits and Rebates in Idaho and Wisconsin.

In addition to increasing their state EITC, lawmakers in New Jersey enacted a new targeted state-level Child and Dependent Care Tax Credit for households with income below $60,000. This year Colorado also expanded its existing credit, raising the allowable income limit on the books and increasing the percentage of the federal credit that can be applied to state taxes. The new law allows residents with income below $150,000 to claim 80 percent of their federal child care credit.

Lawmakers in Maine continue to debate the state’s response to federal tax conformity, but an expansion to the state’s Child and Dependent Care Tax Credit and other proposals to benefit the state’s workers and families remain under consideration.

We also saw some forward momentum on Child Tax Credits in Idaho and Wisconsin this year. A nonrefundable credit of $205 per child, increased from the original $130, is now available in Idaho. And Wisconsin lawmakers approved a one-time rebate of $100 per child.

---

---