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Blog Post · April 19, 2023

Midway through California’s Extended Tax Season, Low-Income Filers Are Claiming Larger State Credits

photo - Father Doing Financial Paperwork with Son on Lap

Tax credits for California’s lowest-income residents—such as the California Earned Income Tax Credit (CalEITC) and the Young Child Tax Credit (YCTC)—are a small but growing part of the state’s anti-poverty toolkit. By the end of March 2023, the state had already refunded more dollars than in previous years, to fewer filers. Historically, relatively few eligible Californians have claimed CalEITC; spending would be much higher if all eligible Californians claimed state credits. The tax season has been extended beyond its regular April deadline for nearly all counties, so California could be on track to spend much more on these credits than in previous years.

Filers are income eligible for CalEITC and YCTC if they earn up to $30,000 annually—almost 20% below the poverty threshold for a family of four, according to the California Poverty Measure. As of 2023, filers with young children can claim the YCTC even if they do not have any earned income. All but the highest-earning YCTC claimants receive the full $1,083 credit (it phases out with higher earnings). New in 2023 is the Foster Youth Tax Credit (FYTC), directed to young adults who were formerly in foster care; it is similar to the YCTC, although—like both the federal and state EITCs—it requires earned income. Up to 20,000 young adults may be eligible for the FYTC; to date, about 3,000 filers have claimed a total of $3.1 million.

In 2022, 3.6 million Californians and their families (about 5.6 million people total) claimed $1.05 billion from CalEITC and YCTC when they filed state tax returns; CalEITC claimants received an average of $195 and YCTC claimants received an average of $927.

As of March 31, 1.8 million low-income filers and their families (about 3 million people in all) had claimed CalEITC, and 285,000 had claimed YCTC, totaling $838 million. YCTC claims were up 9% compared to March 31, 2022, while CalEITC claims were down 5%. However, the share of claimants with dependents—who are eligible for much higher amounts of CalEITC than those without—was up 14%. CalEITC allowances were up 26% relative to March 31, 2022 (accounting for inflation adjustments to credit amounts). Only about a quarter of CalEITC claimants in 2021 and 2022 had dependents, although nearly 40% of potential filers with incomes under $30,000 have dependents.

The higher amount claimed in spring 2023 also reflects lower reported incomes. CalEITC is designed to provide the biggest boost to filers with incomes under about $15,000; credits for filers earning $15,000 to $30,000 are much smaller. On average, CalEITC claimants thus far in 2023 report lower incomes on their tax returns than claimants in 2022.

YCTC claimants are also reporting lower incomes this year. This does not reflect a large new population of YCTC filers with no earned income: so far, only about 0.3% are members of this newly eligible group. However, the increasing number of YCTC claims, particularly among lower-income filers, might indicate that an increasing share of eligible Californians are claiming YCTC, if it carries though the tax season. Conversely, the decrease in total CalEITC claims does not necessarily indicate a decline in take-up; it may have to do with the fact that the income eligibility threshold has not changed, while wages (and inflation) have been rising.

Ensuring that eligible Californians receive their tax credits remains a priority for policymakers, who continue to explore additional expansions and modifications. The next modification—slated to take effect in or after 2024—will prevent credits from being intercepted to pay off debts other than child and family support. This could have a meaningful impact, as 9.3% of CalEITC and YCTC allowed in 2022 was offset to pay outstanding debts.

With the tax season extended to October for most Californians, there is still plenty of time for eligible filers to claim the CalEITC, YCTC, and FYTC. Filers can also get previously unclaimed CalEITC  for up to four years prior and YCTC going back to 2019, if they were eligible in those years. With inflation still making a dent in household budgets, these credits could help many families make ends meet over the next several months.

Topics

California Poverty Measure Health & Safety Net income inflation Poverty & Inequality safety net tax credits taxes wages