Report Earned Income Tax Credit Overview

Federal Earned Income Tax Credit

The federal EITC is a tax credit that reduces the amount of federal income tax owed and is refundable if the tax filer's credit is larger than their tax liability. To claim the EITC, a tax return with proper documentation must be filed with the Internal Revenue Service. The amount of the credit changes every year and is based on earnings, number of qualifying children and marital status. A qualifying child is determined by age, the relationship to the filer, how long the filer and child have lived together in the U.S., and whether the child has filed a joint return. Those without a qualifying child must be 25-65 years old at the end of the year, live in the United States for more than half the year and cannot qualify as a dependent of another person. 

The American Rescue Plan Act of 2021 temporarily expanded eligibility and increased the maximum credit for individuals that qualify as childless for the 2021 tax year. For more information on these changes, please see The “Childless” EITC: Temporary Expansion for 2021 Under the American Rescue Plan Act of 2021, Congressional Research Service, May 2021. 

For a complete list of current requirements, please see the IRS Earned Income Tax Credit Qualifications page. For a complete legislative history of the federal EITC, see The Earned Income Tax Credit (EITC): A Brief Legislative History, Congressional Research Service, April 2022. For a complete distribution of federal EITC tax-filings and total credit value by state, see the IRS EITC statistics page. 

State Earned Income Tax Credits

State earned income tax credits provide an additional benefit to the federal credit for low-income taxpayers by reducing their state income tax liability. Current state EITC policies are modeled after the federal credit, but vary somewhat on eligibility standards, methods for calculating the credit amount, refundability, awareness and outreach efforts, and data tracking requirements. 

State EITC eligibility requirements often closely match federal requirements; however, there are some differences. Wisconsin’s credit does not apply to childless workers, and California’s credit focuses on a narrower segment of income levels than the federal credit. Most states—with notable exceptions including California, Minnesota and Washington—calculate their EITCs as a percentage of the federal credit, ranging from 4% in Wisconsin to 125% in South Carolina. Minnesota calculates their state EITC based on a percentage, but also accounts for household income level. California, Colorado, Maryland, Minnesota, Vermont and Washington expanded eligibility to include individuals using a valid individual taxpayer identification number.

Washington is the only state without state income tax and a state EITC. Eligible Washington residents apply to the Washington Department of Revenue to receive the credit. The state verifies eligibility by matching IRS data to the application. The revenue department is required to work with the IRS to pay the rebate automatically as quickly as possible. Filers who are eligible for the federal EITC are also eligible for the Washington EITC, with the state credit amount based on the filer's income and family size. 

Twenty-seven states, the District of Columbia, Guam and Puerto Rico have a refundable earned income tax credit, similar to the federal government. Delaware, Maryland and Virginia offer a refundable and nonrefundable EITC, but applicants much choose one or the other. To be eligible for EITC refunds at the state and federal levels, a tax return must be filed. Since many low-income workers are not required to file a return, they often miss out on the full value of refundable credits. In response, several states have implemented measures to increase the awareness of EITCs. Iowa and Maine are among states that require beneficiaries of certain assistance programs to be informed of the benefits of EITCs. 

Laws in Oregon, Vermont and Virginia directly charge state agency heads with leading EITC outreach activities. Oregon requires its Bureau of Labor and Industries commissioner to adopt rules requiring employers to share information about state and federal EITCs with their employees. In addition, several states including Iowa, Oklahoma, Texas and Virginia appropriate funds or implement measures to help state and federal EITC-eligible families prepare their tax filings. 

Some states including California, New Jersey and Hawaii require state EITC statistical data to be collected and reported. Hawaii’s law, for example, requires the director of taxation to prepare an annual report detailing the number of credits granted, the total dollar amount granted and the average credit value distributed for specified income ranges during the prior calendar year. Arizona, Texas and West Virginia have laws related to the federal EITC. Arizona requires the Department of Economic Security to provide all child care subsidy recipients with information regarding the federal EITC. Texas mandates the state's Workforce Commission assist recipients of TANF and other low-income workers with applying for the federal EITC. 

For a list of enacted legislation related to earned income tax credits, please see NCSL’s Earned Income Tax Credits Enactments. 

Notes

a—Maryland taxpayers without dependents qualify for 100% of the federal EITC, while taxpayers with dependents qualify for the 45% refundable credit. Taxpayers can claim either the refundable or nonrefundable tax credit, but not both.

b—Minnesota’s credit phases out jointly with the state child tax credit when income exceeds $29,500 for individual filers and $35,000 for joint filers. The credit is also increased for every dependent above the age of 17. $925 for one older dependent; $2,100 for two dependents; and $2,500 for three or more dependents.

c—Missouri’s credit will begin at 10% but could be increased to 20% depending on the amount of the state’s net general revenue.

d—South Carolina created a phase-in system with six equal installments of 20.83% each tax year until it became fully phased-in in tax year 2023 at 125% of the federal EITC.

Source: StateNet bill tracking current as of October 2023.