The Earned Income Tax Credit in California
- The federal government offers a tax credit for low- and moderate-income working families.
The Earned Income Tax Credit (EITC) is designed to offset a family’s federal income taxes. To be eligible, parents must earn less than about $38,500 to $52,500 (depending on their filing status and number of children) and have no more than $3,350 in investment income. For tax year 2014, the maximum EITC for families with two children is $5,460. Single filers with no dependents who earn less than about $14,500 to $20,000 may also be eligible for a small credit. Filers who owe no taxes after accounting for deductions receive their full credit—for the 2012 tax year, roughly 4 in 5 California EITC claimants were in this category. The average credit for tax year 2012 was $2,335. Statewide, 19.9% of tax filers qualified for the EITC, although eligibility varied across counties.
SOURCE: Brookings EITC Interactive.
NOTES: Differences across counties are due to variation in both eligibility and take-up of the EITC. Eligibility hinges on adjusted gross income, and filers must have social security numbers and limited investment income. Most recipients have one or more dependent children.
- The EITC is one of the largest social safety net programs.
In California, 3.1 million tax filers (most of whom had at least one child) claimed $7.3 billion in EITC for the 2013 tax year. Government outlays on the EITC were about the same as on CalFresh food assistance and more than twice as much as federal and state expenditures on CalWORKs cash assistance ($3.2 billion). According to the IRS, California’s EITC participation rate in 2010 was about 71%—lower than the estimated rate in the nation as a whole (79%) but higher than statewide participation rates for both CalWORKs and CalFresh. Most who are eligible for but do not receive the EITC fail to file a tax return in the first place.
- Unlike many other states, California does not have its own EITC.
Several state EITC bills have been introduced but not passed in recent legislative sessions—two in 2011–12, one in 2013–14, and four in 2015–16. For example, Assembly Bill 43, one of the measures introduced in 2015–16, proposes a state EITC worth 60% of the federal credit for single filers with no dependents, 35% for filers with children under 5, and 15% for families with older children. Among the 26 states with their own EITCs, this kind of "add on” to the federal credit is common. It eases the state administrative burden, but limits the ability to tailor the EITC according to state priorities.
- Citizen children with unauthorized immigrant parents are not eligible for the EITC.
Unauthorized immigrants can and often do pay taxes without a social security number, but they cannot claim the EITC without one. As a result, a million or more U.S.-born or legal immigrant children in California are ineligible for the EITC. This situation could change. If President Obama’s recent executive action on immigration withstands legal and other challenges, unauthorized immigrants who gain deferred action status may be able to obtain social security numbers.
- The EITC encourages work.
Research has shown that the EITC encourages employment among single parents who have participated in CalWORKs and also among the broader low- and moderate-income population. According to the California Poverty Measure, which incorporates taxes paid and tax credits received, EITC dollars represented the difference between living in poverty and not living in poverty for about 430,000 adults and 368,000 children in California in 2012.
- Most EITC claims were made by full-time workers.
In 2013–14, 62% of total EITC paid out to Californians went to full-time workers. Involuntary part-time workers (those who would prefer full-time employment) claimed 26% of the total, and just 12% went to voluntary part-time workers. The majority of EITC dollars went to Californians with either a high school degree (28%) or less (38%).
SOURCE: Author’s calculations from the CPS-ASEC for 2013 and 2014.
NOTES: Statistics refer to percentages of total EITC dollars within each of the education or work categories shown among adults ages 18–64. Part-time categories include those who worked part-time for any portion of the year, even if they usually worked full-time. For married couples, characteristics of spouse with more work used.