Credit where credit is due



Despite the vast wealth in Massachusetts, many families are
left behind.


The economy has continued to grow but many low- and
moderate-income
families struggle to get by in the face of housing and childcare costs
that are some of the highest in the nation.1



One of the most successful ways to lift people out of poverty
is through tax credits targeted to low- and moderate-income families.
Families use these credits to reduce their income taxes or receive a
refund check. The Earned Income Tax Credit (EITC) and Child Tax Credit
(CTC) are two widely successful tax credit programs for improving
family economic security and well-being — combined, the
credits lift more people out of poverty than any other federal program
except Social Security.2
Nonetheless, there are opportunities
to make these programs even better.


How these tools help
families


The Earned Income Tax Credit (EITC) and Child Tax Credit (CTC)
havebeen shown to:



  • Keep people out of
    poverty.

    The EITC benefits about 400,000 Massachusetts families and the CTC
    benefits about 230,000 families.3
    About 150,000 people in
    Massachusetts were kept out of poverty each year by the EITC and
    CTC.4
    Multiple studies show that the EITC and CTC help
    families reduce stress by enabling them to better manage household
    finances, use the money for necessary expenses, and build their
    savings.5




  • Boost health. Studies show
    these tax credits tend to improve the well-being of infants, mothers,
    and entire neighborhoods. The extra boost from the EITC has also been
    linked to other predictors of health outcomes, such as better access to
    prenatal care, improved ability to purchase nutritious foods, and
    reduction of financial stress.6




  • Improve educational outcomes.
    Extensive research has linked these tax credits with improved
    educational achievement. For instance, the EITC has been linked to
    improved test scores as well as higher high school graduation rates and
    college enrollment. Better educational outcomes can, in turn, improve
    health and economic mobility.7




  • Encourage people to work. One
    study found that EITC expansions were the most important reason that
    employment rose among single mothers with children during the 1990s.
    The EITC had a larger impact in increasing work than the strong economy
    or policy changes in cash assistance programs.8


How these tools can
be even
better


While the EITC and CTC are two of the most effective programs
to help
families stay afloat, both credits still don’t reach some of
the workers and families who need them the most.


Legislation currently before Congress could increase the
federal EITC
and CTC and extend these credits to some of the workers and families
who currently cannot benefit. Proposals would, for instance, enable
young, low-wage adults entering the workforce and older adults nearing
retirement to claim the EITC. Likewise, very low-paid parents, who
currently are ineligible for the CTC, could be included in its benefits.


The Legislation could also give a greater boost to workers not
claiming
children. These workers can currently claim the EITC, but their credit
is so small that they are the only group often taxed into poverty.9


About the Earned Income Tax
Credit (EITC)


What is the EITC?


The EITC is a refundable tax credit for lower-income workers
— especially those with children.


How does the federal EITC work?


When eligible workers file their annual income taxes, they can
subtract
their credit amount from the total taxes they owe the federal
government.


The credit is also “refundable” which
means that,
if the credit is more than the amount a taxpayer owes, the taxpayer can
receive a refund for the difference.


When workers file their 2019 taxes, working families with
children who
earned up to about $41,100 to $56,000 (depending on marital status and
number of dependent children) may be eligible for the EITC.


Does Massachusetts offer a state match?


Yes — Massachusetts provides its own state EITC that
is 30
percent of the value of the federal credit. It operates largely under
the same eligibility rules as the federal EITC — a tax
filer’s eligibility and the value of their credit depend on
marital status, how much income the tax filer earned that tax year, and
how many dependent children the tax filer has at home.


What is the EITC’s impact in MA?


In Massachusetts, about 400,000 tax filers claim the state
EITC
yearly.10
This means $840.8 million in federal dollars helped
give Massachusetts workers a boost.11


How does the EITC help advance racial equity?


The persistent effects of systemic racism have barred many
workers of
color from economic opportunity, meaning workers of color tend to have
lower pay. A larger percent of families of color are lifted out of
poverty by the EITC than white families.12
Nonetheless,
families of color still are more likely to remain in poverty even after
they receive the EITC.13


Of those eligible for the EITC in Massachusetts, more than
half are
White, about 19 percent are Hispanic, 13 percent are Black, and 7
percent are Asian or Pacific Islander.14


What are the credit amounts in the 2019 tax year?


The maximum amount of credit for a married couple jointly
filing taxes
for the 2019 tax year is:15



  • $6,557 for families with three
    or more qualifying children

  • $5,828 for families with two
    qualifying children

  • $3,526 for families with one
    qualifying child

  • $529 for families with no
    qualifying children


What are some limitations?


Currently, workers who are younger than 25
cannot claim the EITC unless
they are claiming children. A newly graduated 23-year-old getting a
foothold in the workforce, for instance, cannot claim the EITC even if
they are paid too little to cover the cost of living or pay back
student loans.


For other workers not claiming children, the
EITC benefit is so low
that many of them are taxed into poverty.16


Tax filers older than 64 also cannot claim
the EITC. With the full
retirement age for receiving Social Security rising to age 67 (by
2022), many older adults with little retirement security may work more
years but still struggle to get by in a high-cost-of-living state like
Massachusetts.


About the Child Tax Credit (CTC)


What is the CTC?


When families with children file their
annual income taxes, if they owe
taxes to the federal government, they can use the Child Tax Credit to
reduce the amount they owe. This helps them meet their
children’s basic needs.


How does the CTC work?


The CTC is worth up to $2,000 per eligible child for a tax
year.
Consider a couple with two qualifying children who would owe $4,600 in
taxes without the credit. With the credit, they can reduce their tax
bill by $2,000 per child and would instead owe $600.


The credit is typically worth less for lower-income families.
Those
families paid less than $2,500 are completely ineligible for the CTC.
The CTC is worth 15 percent of each dollar in earnings above this
$2,500 threshold rising to the full credit for those paid $200,000 (or
couples paid $400,000). The credit phases out completely for those paid
more than $280,000 (or couples paid more than $480,000).17


For example, a single parent who is paid $3,000 can only claim
a $75
credit, while a couple with two children who is paid $400,000 can
together claim a $4,000 credit.


The CTC ramps down for higher-income households that need less
help
with the costs of raising children.


Unlike the EITC, this credit is only partially
“refundable,” meaning if the credit is more than
what the taxpayer owes the federal government, the taxpayer can receive
a refund for the difference. The taxpayer can claim a refund no larger
than $1,400 per child.


The CTC also includes a $500 credit for families with eligible
dependents older than 17. This credit is non-refundable.


Does Massachusetts offer a state match?


No, Massachusetts does not offer a state CTC. Two states

New York and Oklahoma — offer credits directly tied to the
federal CTC. A handful of other states offer dependent credits.18


What is the CTC’s impact in Massachusetts?


In Massachusetts, 401,140 tax filers claimed the federal CTC,
according
to the most recently available data from 2016. This brings $473.9
million in federal dollars into the pockets of Massachusetts working
families.19


How does the CTC help advance racial equity?


Like the EITC, systemic barriers to opportunity mean children
of color
are more likely to be in families with less income. The federal CTC
helps reduce poverty among families, but its effect differs by race and
ethnicity. Across the nation, the CTC lifts 20 percent of White,
non-Hispanic children out of poverty, 18 percent of Hispanic children,
and only 13 percent of Black, non-Hispanic children.20


Expanding the federal credit and combining it with a state
match could
move more children out of poverty and even out the different impacts
between racial and ethnic groups.


What are some limitations?


While the CTC is effective at keeping many working families
out of
poverty, the credit excludes some of the lowest earners.


As discussed earlier, a family that earns less than $2,500
after other
deductions is ineligible for a credit and a single parent with two
children earning between $2,500 and $30,000 only receives partial
credit. Across the nation, about 26 million children live in families
facing extreme poverty who aren’t paid enough to qualify for
the full CTC.21
These are families that may most need the full
credit.


Further, because the CTC is only partially refundable,
families with
smaller tax bills are unable to make full use of the credit they are
eligible for.


Finally, while the CTC is helpful for families with children
of all
ages, the credit may not go very far for parents with very young
children. This can be a challenge, particularly in Massachusetts
— one of the least affordable states for child
care.  In Massachusetts, infant child care can cost anywhere
from $12,800 to $20,415 per year depending on the type of child care.22
Currently, the maximum CTC would only help offset about a sixth to a
tenth of these costs.


Ways to make tax credits work
better for workers and families


The EITC and CTC are some of the most effective tools for
keeping
families out of poverty, but there are several ways to expand both
programs so they can support the families who need them most. One
proposal before Congress — the Working Families Tax Relief
Act — could make these expansions.


How can the EITC work better?



  • The EITC could be increased to
    better support families and workers in Massachusetts.
    The
    EITC has been
    proven to keep millions of Americans out of poverty, but it often does
    not go far enough in an expensive state like Massachusetts —
    where a worker receiving the minimum wage would have to work 91 hours a
    week to afford an average, one-bedroom rental home. 23




  • The EITC could better support
    workers not raising children.
    Currently, workers not claiming
    children
    are often taxed into poverty. Even if they are eligible for the EITC,
    the amount is so low that it does not help keep them out of poverty.24




  • The EITC could include some
    other working people who could most use a boost.
    These
    include young
    adults early in their careers without children at home and older adults
    nearing retirement age.


How can the CTC work better?


The CTC is a powerful tool for families to ensure they can
give their
children the best shot at a bright future. But — like the
EITC — it currently doesn’t reach some who could
use it most.



  • The CTC could include low-paid
    families and single parents.
    The full credit could be
    expanded to
    support families who are paid very little and single parents with low
    pay, both of whom either cannot claim the credit or can only claim part
    of it.




  • The CTC could be made
    fully-refundable.
    Families at present only can receive part
    of their
    refund if the credit is worth more than what they owe in taxes. In
    Massachusetts, a fully-refundable $2,000 federal CTC could lift 22,000
    children (40,000 people total) out of poverty.25




  • The CTC could give the
    youngest children an additional boost.
    In a state with some
    of the most
    expensive child care in the country,26
    those with very young
    children may be hard pressed to find good, affordable child care that
    allows them to go to work worry-free. The CTC can give an extra boost
    to those with children younger than school age.


Who would benefit from these improvements?


image1Expanding
both the federal EITC and CTC could help give about
1.9
million Massachusetts residents a boost.27
With these
expansions, a quarter of Massachusetts taxpayers could see some
combination of tax cuts or refunds averaging $1,820 in 2020.28


Of those in Massachusetts who would benefit, 32,200 are
veteran or
active-duty military households.29


image2


Expanding these programs could help give a boost to more than
a quarter
of the entire Massachusetts population. Expanding these credits can be
one modest step towards advancing racial equity — by helping
workers of color make ends meet. This expansion could also have
far-reaching effects in improving their long-term health, giving
children the best shot at school success, and enabling workers to
support their families.



2Robert
Greenstein et al., “Improving the Child Tax Credit for Very
Low-Income Families,” Center on Budget and Policy Priorities
(April 2018), pp.2 & 4-5, https://www.cbpp.org/sites/default/files/atoms/files/urban_ctc_paper.pdf



3Center
on Budget and Policy Priorities, “The Earned Income Tax
Credit: A Critical Tool to Fight Poverty and Reward Work in
Massachusetts,” (2019) https://www.cbpp-multimedia.org/1-25-19tax/1-25-19tax_eitc_massachusetts_statewide.pdf
; Center on Budget and Policy Priorities, “The Child Tax
Credit: A Tool for Fighting Child Poverty in Massachusetts,”
(2019)
https://www.cbpp-multimedia.org/1-25-19tax/1-25-19tax_actc_massachusetts_statewide.pdf



4
Nancy
Wagman, “Obstacles on the Road to Opportunity,”
MassBudget (May 9, 2018), p.33, http://massbudget.org/reports/pdf/Obstacles-on-the-Road-to-Opportunity-funder-update.pdf



5
Robert Greenstein et al., “Improving the Child Tax Credit for
Very Low-Income Families,” Center on Budget and Policy
Priorities (April 2018), Jeffrey Grogger, “Welfare
transitions in the 1990s: The economy, welfare policy, and the
EITC,” Journal of Policy Analysis and Management (August 25,
2004),https://doi.org/10.1002/pam.20042https://www.cbpp.org/sites/default/files/atoms/files/urban_ctc_paper.pdf



6Phineas
Baxandall and Monique Ching, “A Credit to Health: The Health
Effects of the Earned Income Tax Credit,” MassBudget (May 3,
2018), http://massbudget.org/report_window.php?loc=A-Credit-to-Health.html



7Phineas
Baxandall and Monique Ching, “A Credit to Health: The Health
Effects of the Earned Income Tax Credit,” MassBudget (May 3,
2018), http://massbudget.org/report_window.php?loc=A-Credit-to-Health.html



8
Jeffrey Grogger, “Welfare transitions in the 1990s: The
economy, welfare policy, and the EITC,” Journal of Policy
Analysis and Management (August 25, 2004), https://doi.org/10.1002/pam.20042



9
Chuck Marr and Yixuan Huang, “Childless Adults Are Lone Group
Taxed Into Poverty,” Center on Budget and Policy Priorities
(June 10, 2019), https://www.cbpp.org/research/federal-tax/childless-adults-are-lone-group-taxed-into-poverty



10
Kids Count Data Center, “State Earned Income Tax Credit
(EITC) claims by city and town (“County
Subdivision”) in Massachusetts,” https://datacenter.kidscount.org/data/tables/8526-state-earned-income-tax-credit-eitc-claims-by-city-and-town-county-subdivision?loc=23&loct=2#detailed/11/3324-3674/true/871,870,573,869,36/any/19076,19077



11
Internal Revenue Service, SOI Tax Statistics – Massachusetts Individual
Income Tax Returns – 2016 ZIP Code Data, https://www.irs.gov/statistics/soi-tax-stats-individual-income-tax-statistics-2016-zip-code-data-soi



12
Douglas J. Gagnon et al., “State EITC Programs Provide
Important Relief to Families in Need,” University of New
Hampshire Carsey School of Public Policy (2017), p.3, https://scholars.unh.edu/cgi/viewcontent.cgi?referer=&httpsredir=1&article=1295&context=carsey



13
Douglas J. Gagnon et al., “State EITC Programs Provide
Important Relief to Families in Need,” University of New
Hampshire Carsey School of Public Policy (2017), p.3, https://scholars.unh.edu/cgi/viewcontent.cgi?referer=&httpsredir=1&article=1295&context=carsey



14
2015 data from the Urban Institute’s Analysis of Taxes,
Transfers, and Income Security Model.



15
Internal Revenue Service, “2019 EITC Income Limits, Maximum
Credit Amounts and Tax Law Updates” https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/eitc-income-limits-maximum-credit-amounts-next-year



16
Chuck Marr and Yixuan Huang, “Childless Adults Are Lone Group
Taxed Into Poverty,” Center on Budget and Policy Priorities
(June 10, 2019), https://www.cbpp.org/research/federal-tax/childless-adults-are-lone-group-taxed-into-poverty



17
Center on Budget and Policy Priorities, “Policy Basics: The
Child Tax Credit” (April 8, 2019), https://www.cbpp.org/research/federal-tax/policy-basics-the-child-tax-credit



18
Aidan Davis et al., “The Case for Extending State-Level Child
Tax Credits to Those Left Out: A 50-State Analysis,”
Institute on Taxation and Economic Policy and Center on Poverty
& Social Policy at Columbia University (April 2019), p.9, https://itep.org/wp-content/uploads/041719-Child-Tax-Credit_ITEP-CPSP.pdf



19
Internal Revenue Service, SOI Tax Statistics – Massachusetts Individual
Income Tax Returns – 2016 ZIP Code Data, https://www.irs.gov/statistics/soi-tax-stats-individual-income-tax-statistics-2016-zip-code-data-soi



20
Aidan Davis et al., “The Case for Extending State-Level Child
Tax Credits to Those Left Out: A 50-State Analysis,”
Institute ,” Institute on Taxation and Economic Policy and
Center on Poverty & Social Policy at Columbia University (April
2019), p.15, https://itep.org/wp-content/uploads/041719-Child-Tax-Credit_ITEP-CPSP.pdf



21
Chuck Marr, “Legislation Would Boost EITC, Child Tax Credit
for Millions of People With Disabilities,” Center on Budget
and Policy Priorities (July 26, 2019), https://www.cbpp.org/blog/legislation-would-boost-eitc-child-tax-credit-for-millions-of-people-with-disabilities




23
National Low Income Housing Coalition, “Out of Reach 2019:
Massachusetts,” (2019), https://reports.nlihc.org/oor/massachusetts



24
Chuck Marr and Yixuan Huang, “Childless Adults Are Lone Group
Taxed Into Poverty,” Center on Budget and Policy Priorities
(June 10, 2019), https://www.cbpp.org/research/federal-tax/childless-adults-are-lone-group-taxed-into-poverty



25
Aidan Davis et al., “The Case for Extending State-Level Child
Tax Credits to Those Left Out: A 50-State Analysis,”
Institute on Taxation and Economic Policy and Center on Poverty
& Social Policy at Columbia University (April 2019), p.21, https://itep.org/wp-content/uploads/041719-Child-Tax-Credit_ITEP-CPSP.pdf




27
Chuck Marr et al., “Working Families Tax Relief Act Would
Raise Incomes of 46 Million Households, Reduce Child
Poverty,” Center on Budget and Policy Priorities (April 10,
2019), Appendix Table 1, https://www.cbpp.org/research/federal-tax/working-families-tax-relief-act-would-raise-incomes-of-46-million-households



28
Institute for Taxation and Economic Policy, “Working Families
Tax Relief Act” (Updated September 10, 2019), estimate for
2020, https://itep.org/working-families-tax-relief-act/



29
Estimates from the Center on Budget and Policy Priorities, based on
2015-2017 American Community Survey data and March 2018 Current
Population Survey data.







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