So far in the 2024 legislative season, which is ending, four states have expanded or boosted refundable tax credits for children and families, and the District of Columbia is on the verge of creating a new Child Tax Credit.
These measures (in Colorado, Illinois, New York, Utah, and DC) continue the recent trend of supporting the well-being of children and families with refundable tax credits.
Fully Refundable Tax Credits
Two of these four states, in addition to the District of Columbia, have credits that are fully refundable. When credits are refundable, households get the full value of the credit regardless of how much state income tax debt they carry, meaning the credit can help offset the impact of more regressive taxes, such as those imposed on sales and ownership. This makes both EITCs and CTCs more favorable to improving equity in state tax codes.
Colorado’s New and Expanded Tax Credits
Colorado approved an expansion of its Earned Income Tax Credit that will increase its match to 50 percent of the federal credit by fiscal year 2024.
Lawmakers also created a new credit, called the Family Affordability Tax Credit, which will expand the state’s existing Child Tax Credit and could provide an additional credit of up to $3,200 per child in years of strong economic growth.
New Child Tax Benefits in DC and Illinois
The new D.C. Child Tax Credit, offering $420 per qualifying child under 6 years old, will also be fully refundable.
Additionally, the state of Illinois created a new benefit for children through its existing Earned Income Tax Credit, which will increase the credit for EITC-eligible families with children under 12 years old.
Utah and New York: Expanding and Boosting Tax Credits
Utah expanded its non-refundable Child Tax Credit so that four-year-olds are now eligible, where previously it was eliminated once the child was over three years old.
On the administrative side, Minnesota lawmakers developed the structure to provide periodic payments for the state’s historic Child Tax Credit, which passed in 2023. Additionally, New York is providing a one-time boost to its Empire State Child Tax Credit for this year.
The Historical Context and Growth of EITCs and CTCs
For nearly 40 years, states have used EITCs to boost economic security for low- and middle-income families. States only recently began administering CTCs in 2006, when New York created its Empire State Child Credit.
After federal expansions of the EITC and CTC in the American Rescue Plan Act expired in 2022, many state lawmakers took the future of these powerful poverty-minimizing credits into their own hands.
As of 2022, 12 states plus the District of Columbia have originated or expanded CTCs, and 17 states plus the District of Columbia have generated or expanded EITCs.
Merging Policies for Greater Impact
As child tax credits and earned income tax credits become more popular, lawmakers have also merged these two policies to make credits more impactful. In recent years, we have seen this in states like Washington and Minnesota.
Washington is the first state without an income tax to approve an EITC, which, unlike traditional EITCs, does not have a gradual implementation based on income. In 2023, Minnesota lawmakers restructured its EITC, known as the Working Families Credit, so that it could be better coupled and reduced gradually and simultaneously with the state’s new CTC.
Continuing Developments in 2024
This continued in 2024 when Illinois passed a new child benefit that increased the state’s Earned Income Credit for households with a child under age 12 by matching the state credit by 40 percent (the equalization will be 20 percent in 2024 as it is phased in).
Talks are still underway in many states about merging their credits. For example, New York lawmakers have considered blending their Empire State Earned Income Credit and the EITC in a way that better targets lower-income families while ensuring that no family is penalized by the changes.
