What is the Earned Income Tax Credit?
The Earned Income Tax Credit (EITC) is a federal tax credit that serves as one of the nation’s most effective policies at keeping working families out of poverty and moving toward the middle class. It cuts taxes from the bottom up for people like sales clerks, teaching assistants, home health aides and other workers that earn low wages. The credit is available only to people who work and grows in size, up to a point, as wages rise. That encourages people to stay employed and work more hours. The exact size of a family’s credit depends on their household income, marriage status and number of dependent children.
Thirty states and the District of Columbia build on the federal EITC’s time-tested success with their own state-level versions of the tax credit. These state credits piggyback on the federal version by providing a limited credit against state and local taxes, based on a percentage of the federal credit’s value.
Georgia Work Credit Would Boost State Economy, Working Families
Georgia can also build on the time-tested success of the EITC by enacting a Georgia Work Credit, a 10 percent percent refundable state EITC. The Georgia Work Credit would:
Reduce the amount of income tax owed by low- and middle-income families. The Georgia Work Credit would reduce tax bills for families that work but struggle to make ends meet because of low-wage jobs. A young married couple with a new child and $29,000 of annual income could see a state tax cut of $250.
Help Georgians with jobs lift their families into the middle class. Nearly 1.1 million Georgia families, representing 28 percent of all households in the state, received the federal EITC in 2013. These same families stand to gain from a Georgia Work Credit. Families getting this bottom-up tax cut use the funds to afford basic necessities like food and child care, as well as larger investments that smooth the path to the middle class like a reliable car to get to work or a down-payment on a new home.
Boost small businesses, local economies and Georgia’s future workforce. A Georgia Work Credit would pump millions of dollars into communities throughout the state by giving customers more disposable income and helping local businesses succeed. It would also strengthen the foundation for young people who comprise Georgia’s future workforce, since research finds that children whose families receive more income from the EITC are likelier to excel in school, graduate high school, attend college and earn more as adults.
The Georgia Work Credit is an affordable, targeted reform that encourages work, expands the middle class and strengthens businesses and local economies.
Who would benefit from a Georgia Work Credit?
Any family eligible to receive the federal EITC would also benefit from a Georgia Work Credit, including:
- About 1.1 million Georgia households, the equivalent of 28 percent of all Georgians filing federal income tax returns.
- About 2.6 million Georgians in total
- Nearly 1.2 million children
- Approximately 770,000 working moms and 410,000 working dads
- 80,000 veterans and military families
The credit delivers the largest value to families on the cusp of the middle class making from about $10,000 to $23,000 a year, though families making up to about $53,000 can qualify depending on specific circumstances like number of children.
Roughly half of all taxpayers with children nationwide make use of the EITC at some point in their lives, usually for only a year or two at a time. The credits are an especially critical work support for young parents, military veterans and low-wage workers trying to keep their families out of poverty. The EITC lifted 248,000 Georgians, including 131,000 children, out of poverty each year, from 2011 to 2013.
Georgia Work Credit Would Support Children and Communities
The benefits of the EITC extend well beyond the adult workers who claim it on their tax returns. Children in affected families receive some of the credit’s most important benefits, since the added funds help create a healthier and more stable home environment for them to thrive. Research finds that children whose families receive more income from the EITC are likelier to excel in school, graduate high school, attend college and earn more as adults.
Local communities benefit too, since the credit puts money directly in the pockets of the people most likely to spend additional dollars in local businesses. Small businesses today consistently cite things like “poor sales” and “not enough customers” as among the key reasons why they struggle. But when working families have more disposable income to spend in local shops and restaurants, small businesses and local economies thrive. In 2013, the federal EITC delivered $2.93 billion to a broad swath of working Georgians at an average value of $2,700 per recipient. A Georgia Work Credit would pump an additional $270 million into Georgia communities.