April 10, 2012
April 10, 2012
This one-page fact sheet describes how a state Earned Income Tax Credit could benefit working families in Ohio. A state credit set at 10 percent of the federal credit would cost Ohio just $210 million, would benefit 949,000 of Ohio's low-income working families with children, and would provide families with a modest but helpful $221 each. Twenty four states have such credits.
The federal Earned Income Tax Credit (EITC) is the nation’s largest poverty relief program for working families. Created by President Ford in 1975 and expanded under every presidential administration since, the EITC is lauded for its direct impact in lifting families with children above the poverty line, making work pay, and sending federal dollars to local communities. To qualify for the EITC, the recipient must have earned income of $49,000 or less. The credit is worth substantially more for families with children and is refundable, which means families receive cash refunds above their tax liability.
Federal EITC already benefits Ohio
In Ohio, the federal EITC benefits more than 949,000 families (17 percent of all tax filers) and brings more than $2 billion to local communities. The average federal EITC refund is $2,211, often equaling three months of pay for a low-wage working family. Empirical research shows that families use their refunds for basic needs, to pay for child-care expenses and on savings. A modest Ohio EITC program, set at 10 percent of the federal credit, would provide the average recipient $221 and would cost the state $210 million per year. A slightly more generous credit, set at 20 percent of the federal credit as in many states, would cost about $420 million per year and would provide families with an average of $442 annually.
State programs supplement federal effort
The federal EITC is so effective that 24 states and the District of Columbia enacted their own state-level programs (see Table 1). Most of the state EITC programs are refundable, ranging from 3.5 percent to 50 percent of the federal credit. States that have enacted EITC programs have a variety of personal income tax structures. A state EITC program enables families to work and build assets while reducing the impact of regressive income tax changes. A state EITC makes sense because recent changes to the personal income tax have provided greater tax reductions for higher-income earners than they have for lower- and middle-income families.
 Colorado’s EITC is contingent upon the state having surplus revenue, which has not occurred since 2001.
 Illinois doubled its refundable EITC from 5 percent to 10 percent in 2012.
 The first year of funding will occur in 2012. Washington is the first state without an income tax to pass a state EITC program.
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