EITC as Direct Payments

Lawmakers Can Use Federal Dollars to Support an Earned Income Tax Credit

COVID-19 continues to affect the health and economic wellbeing of Georgians throughout the state. Many families are struggling to access child care or find a job that pays a living wage, and too many are unable to afford food, rent or other necessities. Thanks to the American Rescue Plan Act (ARP), Georgia will receive $4.9 billion in federal emergency aid meant to address the effects of COVID-19. The federal money can be spent between its receipt and the end of 2024, and can be used to support families.

Right now, none of this money has been appropriated, meaning it has not been assigned a specific use. State leaders are set to start considering uses this summer. One opportunity to deliver immediate and clear relief to families is to create a state-level Earned Income Tax Credit (EITC) modeled after the federal EITC and sent as a direct payment.

Admittedly, this is a little more complicated than just creating an EITC. It is, however, necessary to protect funding for state programs and services while helping Georgia families recover. Below, find answers to some Frequently Asked Questions around Georgia’s path to an EITC.

What is a Direct Payment and Why Must the EITC Be Structured As One?

Usually, when we talk about creating a state EITC, or Georgia Work Credit (GWC), we talk about a tax credit—that is, when a family who qualifies for an EITC goes to pay their taxes, they would owe less or maybe even get a little extra money back.

But now we’re talking about creating an EITC structured as a direct payment. This is because the ARP requires that the money can’t be used for tax cuts—and an EITC is technically a tax cut, just one that is very well-targeted to families who need it. If the state does enact net tax cuts (that is, tax cuts that do not include an offsetting raise in revenues from another source) before the end of 2024 or the federal funds are all used, lawmakers must make equivalent cuts to the budget. Given our state’s budget is already woefully underfunded, we don’t want other state programs and services to suffer.

However, the state can issue direct payments to families. By structuring the EITC as a direct payment, lawmakers can deliver real relief to over 3.5 million Georgians, including the 600,000 workers now eligible because of the ARP’s expansion of the federal credit. A direct payment would be similar to the stimulus checks families have received from the federal government. Georgians who qualify would receive a check or bank deposit equivalent to amount they receive under the federal EITC.

What Does This Mean for A Permanent EITC?

Enacting an EITC as direct payments doesn’t affect our state’s ability to create a more traditional EITC in the future. In fact, strong legislation would include a provision that turns the direct payments into a more traditional tax credit once ARP provisions no longer apply. 

What are the Benefits of an EITC?

Although COVID-19 underscored hardship in our state, it didn’t create it. As our state recovers from COVID-19, an EITC will help put money back in the pockets of Georgia families, helping up to 1.5 million Georgia children. It is targeted specifically to low- and middle-income families, and this money helps them afford food, rent, diapers and other necessities. In fact, an EITC at 10 percent of the federal level would provide over $300 million to benefit local Georgia economies each year.

But even when times are better, an EITC is necessary. Some families may still need additional support to afford necessities, while others can save for emergencies like new tires or medical care. In fact, the EITC is a proven tool to boost health and economic outcomes—it improves infant health, for example, by helping families better afford maternal and postpartum care and nutritious food.

For more on who would benefit in your community, see our County Information Sheets.