As we near the end of the 2024 legislative season, significant strides have been made to enhance the well-being of children and families through the expansion of refundable tax credits. Four states—Colorado, Illinois, New York, and Utah—along with the District of Columbia, have taken notable actions in this regard. Let’s delve into these exciting developments and understand their impact.
Among these states, two plus D.C. have ensured that their credits are fully refundable. This means that households will receive the full value of the credit regardless of their state income tax liabilities.
Additionally, the District of Columbia is on track to introduce a new Child Tax Credit
Such a design helps offset the impact of more regressive taxes like sales and property taxes, making Earned Income Tax Credits (EITCs) and Child Tax Credits (CTCs) more effective in promoting equity in state tax codes.
In a commendable move, four states have either expanded or introduced new refundable tax credits for children and families. These states are:
- Colorado
- Illinois
- New York
- Utah
Here’s a closer look at the specific initiatives undertaken by each state:
- Expanded the Earned Income Tax Credit to match 50% of the federal credit for the 2024 tax year.
- Introduced the Family Affordability Tax Credit, which supplements the existing Child Tax Credit and can provide up to $3,200 per child during years of strong economic growth.
- Rolled out a new Child Tax Credit of $420 per qualifying child under the age of 6, which is fully refundable.
- Created a new child benefit through the existing Earned Income Tax Credit, enhancing the credit for EITC-qualifying families with children under 12 years old.
These actions reflect a growing trend towards supporting families and improving the well-being of children through more equitable tax policies. By making credits refundable, states are ensuring that even those with lower incomes can benefit fully, thereby fostering greater financial stability and equity.
Stay tuned for more updates as we continue to track these important developments in tax policy for families and children.
In a significant move, Utah has broadened its nonrefundable Child Tax Credit to include four-year-olds, previously only available to children up to age three. Meanwhile, Minnesota lawmakers have been busy setting up the infrastructure to deliver periodic payments for the state’s landmark Child Tax Credit, which was passed in 2023. Additionally, New York is set to provide a one-time boost to its Empire State Child Tax Credit in 2024.
Expanding Support for Families
For nearly four decades, states have utilized Earned Income Tax Credits (EITCs) to enhance the economic security of low- and middle-income families. However, it was only in 2006 that states began to administer Child Tax Credits (CTCs), with New York leading the way by creating their Empire State Child Credit.
State Initiatives Post-American Rescue Plan Act
Following the expiration of the federal expansions of the EITC and CTC under the American Rescue Plan Act in 2022, numerous state lawmakers have taken proactive steps to ensure the future of these impactful, poverty-reducing credits. Since 2022, a total of 12 states plus the District of Columbia have either created or expanded their CTCs. Similarly, 17 states plus D.C. have either introduced or expanded their EITCs.
The Growing Momentum of Tax Credits
These changes signify a growing momentum among states to support families through enhanced tax credits. The recent expansions and implementations reflect a dedicated effort to provide continued financial stability and security for households across the nation.
Key Changes at a Glance
- Utah: Expanded nonrefundable Child Tax Credit to include four-year-olds.
- Minnesota: Preparing the structure for periodic payments of Child Tax Credit passed in 2023.
- New York: Offering a one-time boost to the Empire State Child Tax Credit in 2024.
The collective efforts of these states underscore a broader commitment to economic support and poverty reduction, ensuring a brighter future for families nationwide.
As state Child Tax Credits and Earned Income Tax Credits gain popularity, lawmakers are merging these policies to create more impactful benefits. States like Washington and Minnesota have been at the forefront of this movement in recent years.
Washington’s Innovative Approach
Washington stands out as the first state with no income tax to implement an EITC. Unlike traditional EITCs, Washington’s version has no income phase-in, making it unique and more accessible to a broader range of residents.
Minnesota’s Restructured EITC
In 2023, Minnesota lawmakers restructured their EITC, known as the Working Families Credit. This change was designed to better align with the state’s new Child Tax Credit (CTC), allowing both credits to phase in and out simultaneously. This restructuring aims to provide more efficient support to working families.
Illinois’ New Child Benefit
In 2024, Illinois introduced a new child benefit that enhances the state’s Earned Income Credit for households with children under 12. This enhancement matches the state credit at 40 percent, though it will phase in at 20 percent in 2024. This step reflects the ongoing efforts to support families more effectively.
Ongoing Discussions in Other States
The conversation about merging state credits continues in many regions. For example, New York lawmakers are considering merging their Empire State Child Credit and EITC to better target the lowest-earning families. The goal is to ensure that no family is penalized by these changes while maximizing the benefits for those who need them most.
Key Points to Remember:
- State Child Tax Credits and EITCs are becoming increasingly popular and impactful.
- Washington has implemented a unique EITC with no income phase-in.
- Minnesota restructured its Working Families Credit to align with the new state CTC.
- Illinois introduced a new child benefit to boost the state’s Earned Income Credit.
- Discussions continue in states like New York to merge credits for better targeting and efficiency.
Stay tuned to see how these changes unfold and continue to support families across the nation.
This year, a significant trend emerged with the expansion of Child and Dependent Care Credits (CDCTCs). This nonrefundable federal credit helps families by reimbursing a portion of their childcare expenses. Additionally, some states offer either a refundable or nonrefundable match for this credit. Notably, states like Kansas, Colorado, and Wisconsin have expanded their CDCTCs this year.
Understanding the Differences Between CDCTCs and CTCs
While Child and Dependent Care Credits (CDCTCs) and Child Tax Credits (CTCs) are often discussed together, it’s essential to understand that they are distinct policies designed to serve different purposes.
Child and Dependent Care Credits (CDCTCs)
The CDCTC acts as a reimbursement mechanism for families, covering a portion of the childcare expenses they have already paid. To qualify for this credit, most families need to have sufficient income to afford childcare initially. This credit provides a modest financial relief but requires upfront payment by the families.
Child Tax Credits (CTCs)
On the other hand, CTCs are designed to offer low- and moderate-income families a larger tax return. This return provides unrestricted dollars, giving families the flexibility to spend the money on childcare or other necessary expenses according to their needs. Essentially, CTCs empower families with more financial freedom compared to CDCTCs.
Key Takeaways
- CDCTCs reimburse a portion of paid childcare expenses.
- CTCs provide a larger tax return with unrestricted spending.
- States like Kansas, Colorado, and Wisconsin have expanded their CDCTCs.
In summary, while both CDCTCs and CTCs aim to support families, they do so in different ways. Understanding these differences can help families maximize their benefits and make informed financial decisions.
