September 15, 2022

ITEP Policy Briefs: More and More States Are Helping Low-Income Families with New and Expanded Tax Credits

news release

13 states plus D.C. created or expanded state CTCs or EITCs this year, helping create more equitable state tax systems

WASHINGTON, D.C.: In 2022’s state legislative sessions, lawmakers across the country advanced tax policies that will bolster the economic security of millions of low- and moderate-income working families through new and enhanced Child Tax Credits (CTCs) and Earned Income Tax Credits (EITCs). A pair of new policy briefs released today by the Institute on Taxation and Economic Policy (ITEP) detail the progress that states are making and point to best practices for crafting inclusive, effective state tax credits moving forward. (Click here and here for the briefs.)

“State tax credits like the CTC and EITC are some of the most effective tools in the policy toolbox for lawmakers looking to help families struggling to put food on the table, pay their bills and make ends meet,” said Aidan Davis, ITEP’s State Policy Director and the author of the briefs. “Enacting or expanding these credits is a surefire way to chip away at racial and wealth inequality, blunt some of the regressivity of state and local tax systems, and help families meet their basic needs.”

State CTCs are gaining steam after the 2021 federal expansion of the credit was shown to be wildly successful in reducing child poverty, cutting it by more than 40 percent before it was allowed to lapse in 2022. In the absence of federal action to reinstate those reforms, state lawmakers are increasingly adopting these important credits that can boost economic security and reduce childhood poverty. In 2022, three states created new state CTCs and one meaningfully expanded its existing credit. Several states also took one-time actions to help children and families.

  • New Mexico, New Jersey and Vermont created new CTCs
  • California permanently expanded its CTC
  • New York provided a one-time CTC enhancement
  • Connecticut and Rhode Island provided one-time Child Tax Rebates

States have been creating and expanding their own EITCs for a few decades, but the pace of change has accelerated in recent years. That trend continued in 2022, thanks to the nine states plus the District of Columbia that created or improved their EITCs this year.

  • Utah enacted a 15 percent nonrefundable EITC
  • C., Hawaii, Illinois, Maine, Vermont and Virginia expanded their existing credits
  • Connecticut, New York and Oregon provided one-time boosts to their EITC-eligible populations

To date, 31 states plus D.C. offer EITCs while 10 states offer ongoing multi-million-dollar CTCs. The scope and scale of these credits vary drastically across states. The policy briefs contain recommendations on best practices for state lawmakers, such as making EITC fully refundable with a sizable maximum credit and making a fully refundable CTC that is not tied to the federal credit and is set per child, not per family.

Both these tax credits are important policies to advance racial equity through the tax code. That’s because they boost the after-tax incomes and the economic security of a diverse group of families but, when designed well, they can be particularly important for Black, Hispanic, Indigenous, and other people of color confronting economic hardship created by systematic racism.

In addition to helping working families afford childcare, health care, housing, food and other necessities, state EITCs and CTCs help improve the equity of upside-down state and local tax systems. Unlike federal taxes, state and local taxes are regressive, requiring low- and moderate-income families to pay a greater share of their income in taxes than wealthier taxpayers. Tax credits for low-income and working families are some of the most effective ways to offset this imbalance in state tax codes.