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Working Families Are Big Winners of California Tax Credit Expansion

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Copyright Capital & Main

There’s good news for low-income Californians tucked within the massive state budget document Governor Jerry Brown is set to sign this week, including a measure that advocates estimate could benefit more than one million financially struggling families.

The measure to expand eligibility for the California Earned Income Tax Credit (CalEITC), a refundable credit available to low-income working people, can add hundreds of dollars to a family’s annual income. The new CalEITC extends the benefit to a previously excluded group of contract employees – daycare workers, Uber and Lyft drivers, gardeners. Advocates estimate that as many as an additional 300,000 families with self-employment income could now be eligible for the credit. Previously they were ineligible to apply.

The measure also raises the income eligibility threshold to $22,000 annually for all workers—equivalent to yearly earnings from a full-time minimum wage job. The threshold before the CalEITC expansion was $10,000 to $14,000 a year.

The changes in CalEITC mean that families at the lowest income level can still receive up to $2,900 in CalEITC credit but now more families are eligible. Those at the new $22,000 threshold can qualify for hundreds of credit dollars, which vary based on the number of children in the household. The CalEITC, combined with a federal EITC credit, can add hundreds and sometimes thousands of dollars to a family’s annual budget.

A report by the California Budget & Policy Center, a Sacramento-based nonprofit, shows that the majority of parents eligible for state EITC are women (71 percent). Four out of five children benefiting from the income boost are Latino, black or of Asian or Pacific Islander heritage.

“It’s a proven policy—the federal EITC has been researched for decades,” said Alissa Anderson, senior policy analyst for the CBPC. “There’s just a lot of research that we can point to that shows that this is a really effective way to help families make ends meet.”

The federal version of the earned income tax credit was established in 1976 and expanded during the Clinton Administration. In 2015, it lifted some 6.5 million Americans out of poverty, including 3.3 million children, the CBPC estimates.

Twenty-six states and the District of Columbia offer state earned income tax credits—low-income families can apply for both state and federal programs. According to the CBPC 26 million families claimed the federal credit in 2015.

“It’s not just about helping families get by day-to-day,” Anderson said. “The benefits have been shown to last into the next generation. There are studies linking it to better health for babies and better educational achievement for children.”

The new California measure “is a really important win because it means that families who have someone that’s working a full-time minimum wage job, but [are] still struggling to make ends meet, could qualify for a credit,” said Michele Stillwell-Parvensky, Senior Policy and Government Affairs Manager for Children’s Defense Fund-California, one of the advocacy groups that pushed for the expansion. (Others included the Golden State Opportunity Foundation, the Children’s Defense Fund, National Council of La Raza and United Way Bay Area.)

Joe Sanberg founded the Golden State Opportunity Foundation to improve the lives of low and middle-income Californians, and the group advocated for the state EITC eligibility expansion.

“Three out of four Californians are a busted pipe, a blown tire or a broken wrist away from financial crisis,” Sanberg said in an interview. (Disclosure: Sanberg sits on this website’s board of directors.)

The tax credit’s expansion wasn’t originally part of Governor Brown’s budget thinking, although he was a strong proponent of creating the state policy in 2015. California Assembly Speaker Anthony Rendon (D-Lakewood) and Assembly Budget Committee Chair Phil Ting (D-San Francisco) championed the most generous expansion, said Stillwell-Parvensky. It took some advocacy to bring the Senate budget committee into alignment.

Since it’s a credit, the state EITC doesn’t have an expenditure line item in the budget—it’s a reduction in the amount of revenue that comes in to the state. Advocates put the annual price tag at around $140 million.

There is a $2 million line-item associated with CalEITC for outreach and education of tax payers. The funding will go through nonprofits and community organizations. Many with incomes too low to file taxes are unaware of the federal and state credits and miss out on the funds due them. It’s estimated that one in five workers fail to claim federal EITC. And those who do file frequently miss out on some of the benefits.

“We see from the survey research that some of the families that are taking advantage of this credit are paying tax preparers, and [they are] losing some of their credit to those fees,” said Stillwell-Parvensky. “We’re still seeing a fairly low take-up rate by families that are eligible.”

Joe Sanberg’s Golden State Opportunity Foundation established CalEITC4Me after CalEITC became policy in 2015. CalEITC4Me partners with local community groups already working with low-income families to reach out to inform families and connect them with free tax assistance to claim their EITC benefit.

The CalEITC4Me effort last year yielded more participation because of the investment in local groups, according to Sanberg. “In San Bernardino and Riverside counties there was a substantial increase in CalEITC participation,” he said. “It didn’t happen by accident. We invested in organizing capacity and grassroots leadership in those two counties.”


Copyright Capital & Main

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