January 25th is Earned Income Tax Credit (EITC) Awareness Day. The Federal EITC Tax Credit is estimated by the Piton Foundation to help 325,000 Colorado families each year, but one in five families might miss EITC. Either because they don’t claim it when filing their tax return, or don’t file a tax return. This is money that can make a difference. In fact, because of the important difference this tax credit can make State Senator John Kefalas, State Senator John P. Morse who is the current Colorado Senate President, and State Representative Daniel Kagan are co-sponsoring SB13-001: The Working Families Economic Opportunity Act in Colorado this legislative session, which will be described in this article as well.
People who work and earn less than $50,270 from wages, self-employment or farming may be eligible for the EITC and free help preparing their tax return. Tomorrow, January 25th, marks the 7th National EITC Day, an effort to increase public awareness across our country about EITC and free tax preparation sites.
Last year, the federal credit returned close to $62 billion dollars to over 27 million workers in the United States.
Workers who qualify for EITC could receive larger refunds. It can mean up to $475 in EITC for people without children, and up to $5,891 for those with three or more qualifying children. In Colorado last year, 345,000 federal EITC claims were submitted to the IRS. EITC varies by income, family size and filing status; the average EITC amount last year was $2,083 in Colorado in 2012.
Single parents earning less than $45,000 may qualify for a refund through the EITC. Also, free tax preparation assistance is available for people who made less than $50,000 in 2012. Tax Help Colorado is hosting free tax prep sites at 27 locations across the state.
EITC helps the American economic recovery
In his Jan. 19, 2013 New York Times article titled, Inequality is holding back the recovery, Joseph E. Stiglitz, a Nobel laureate in economics, a professor at Columbia University and a former chairman of the Council of Economic Advisers and chief economist for the World Bank, writes:
“There are four major reasons inequality is squelching our recovery. The most immediate is that our middle class is too weak to support the consumer spending that has historically driven our economic growth.”
EITC is a financial boost for working people and their families, and it also allows more funds to flow into our local community. When a family in Denver has more money for child care and groceries, that money goes directly to the small businesses in Denver. This is part of the rationale for those supporting the passage of SB001: The Working Families Economic Opportunity Act of 2013 in Colorado.
SB001: The Working Families Economic Opportunity Act of 2013
In a Jan. 7, 2013 The Durango Herald article titled, Measure would help struggling families, staff writer Joe Hanel reports:
SB001: The Working Families Economic Opportunity Act of 2013 would “broaden the reach of the earned income tax credit, the child tax credit and the child and dependent care tax credit. All three of them offer tax refunds for families below a certain income level.”
“The sponsor, Sen. John Kefalas, D-Fort Collins, said the bill would put money in the hands of people who need it most – and who will spend it locally.”
Budgets are about priorities. This bill prioritizes Colorado’s working families and children. One of the best and most effective ways to relieve the stress of the prolonged tough economy on families in our state is through these tax credits. Twenty-two other states in our nation have EITCs.
Passage of this bill would result in a boost to the paychecks of working families. It would directly help our children and families by giving working families stability, aiding in strong educational outcomes, and stimulating local economies while helping small businesses.
The Working Families Economic Opportunity Act of 2013 includes:
- Creation of permanent, statewide EITC in Colorado
- Creation of a permanent, statewide Child Tax Credit
The Child Tax Credit (CTC) is a tax credit for families supporting children. The CTC is the largest tax code provision benefiting families with children and is a vital factor in the fight to end childhood poverty. This bill would create a permanent Colorado CTC equal to $100 per child ages 5 and younger for many Colorado working families.
- Expansion of the Child and Dependent Care Tax Credit
The Child and Dependent Care Tax Credit aims to offset the cost of child care for families who are working or looking for employment. Colorado currently has a state version of the Child and Dependent Care Tax Credit. This bill would expand the Colorado credit to make it fully refundable and to partially offset the costs of care for adult dependents.
Impact of these tax credits on children and education
In 2008, 13.2 million children in the United States under the age of 18, or more than one in six children, were living in poverty (US Census Bureau 2009).
Children under the age of six whose families get this small income boost from tax credits such as the EITC do better in early childhood education programs, making them more likely to go to college, more likely to succeed there, and more likely to earn more money in their lifetimes than their peers whose families don’t get this boost.
In a study titled, The Impact of Family Income on Child Achievement: Evidence from the Earned Income Tax Credit, published in the American Economic Review (2012), Gordon B. Dahl and Lance Lochner wrote:
”We find that extra family income has a modest, but encouraging, causal effect for children growing up in poor families. Our IV results indicate that current income has significant effects on a child’s math and reading test scores. The baseline estimates imply that a $1,000 increase in income raises contemporaneous math and reading test scores by 6 percent of a standard deviation.”
Health outcomes better for children with EITC
According to a Spring 2012 study by Reagan A. Baughman, The Carsey Institute and the University of New Hampshire, titled, The Effects of State EITC Expansion on Children’s Health, higher family income may improve child health by making medical care and other health-improving behaviors, such as eating healthier foods, more affordable for people.
Let’s say your EITC credit amounts to $400
Some people might say that $400 is not a big deal to a family’s annual income. But the reality is, to a lot of families -- that equals school supplies for a year or gas money for a few months or a month of after school care to permit the parents to work or a winter’s worth of heat.
Between helping raise awareness among your neighbors who may be eligible for the federal EITC this tax season and supporting SB001, you can make a small investment in your state that will lead to big returns.
This is the first in a two-part series on tax credits policy for working families in Colorado. The next article will provide an update on SB001: The Working Families Economic Opportunity Act of 2013 as it proceeds through the State Legislature.