Tomorrow, January 30th, is EITC Awareness Day, and as tens of thousands of Mainers and millions of Americans file their income tax returns, the value of the EITC cannot be overstated. And EITC Awareness Day aims to let folks know that to take advantage of the EITC, you must file a tax return and claim it.
The earned income tax credit (EITC) reduces poverty, promotes work, and increases lifetime earnings for children in low-income working families.
The federal version of the credit, created in 1975, provides substantial support for low-income working families in Maine. 102,000 Maine families, most with children, receive a total of $207 million through the federal EITC. These credits help Maine’s working families pay for life’s necessities like child care, health care, groceries, housing, and transportation. They help offset payroll taxes, property taxes, and sales taxes, all of which hit low-income households harder than they do high-income households. Since low-income working families often spend their tax credits on necessities, the federal EITC also helps boost Maine’s economy during slowdowns like the recent recession and ongoing slow recovery.
Maine is one of 26 states that have their own state versions of the EITC, which can be claimed against state income taxes. These state EITCs are cost-effective and easy for taxpayers to calculate. Some state EITCs are refundable like the federal EITC. They provide all of the same proven benefits of promoting work and reducing poverty that the federal credit does.
Unfortunately, Maine’s EITC is not refundable and is much too small to be effective. Only 20,000 Maine families received an average state credit of approximately $55 in 2013. To reduce poverty and make work pay for Maine’s low-income families, especially those with children, state policymakers should increase the size of Maine’s EITC and make it refundable.
MECEP has urged state policymakers to make the state EITC refundable and increase its value to 10% of the federal credit. These steps would move Maine closer to the middle of the pack among states that have their own EITCs. They would increase annual after-tax income for 102,000 Mainers by $19.6 million, or an average of $192. The vast majority of the benefits would flow to working families with children and annual incomes below $40,000. The total fiscal cost to the state would be approximately $20 million per year. Currently Rep. Peter Stuckey has submitted legislation, LD 96, to accomplish this.
Governor LePage has actually proposed eliminating Maine’s EITC as part of his budget proposal. This is not as drastic as it would seem. Because Maine’s EITC is not refundable, families with no tax liability get no benefit. The governor’s tax plan would increase the number of low-income families that pay no income tax, rendering Maine’s existing EITC moot. Under the governor’s plan anyone who is eligible for Maine’s EITC won’t have to pay taxes anyway. We support efforts to reduce taxes for the bottom 20% of Mainers who already pay a substantially higher share of their income in state and local taxes than anyone else. Keeping Maine’s EITC and making it refundable would be an even more effective way to do this for low-income working families.
MECEP also strongly supports CA$H Maine, a collaboration of ten statewide coalitions, comprised of 50 non- and for-profit partners, who work together, often in collaboration with AARP Tax-Aide volunteers to help low- and moderate-income to take full advantage of the EITC through free tax preparation assistance to qualified filers during the tax season. CASH Maine also connects residents to financial education resources, including money management and home buying workshops, family development accounts (FDAs) and credit counseling.
To learn more from the IRS about the EITC and find answers to frequently asked questions, click here.