EITC and Child Tax Credit Updates

On Tuesday, Chairwoman Kornheiser asked Legislative Counsel to walk the House Ways & Means Committee through the draft language making changes to the two tax credit programs.

Legislative Counsel explained that the draft language which would amend the EITC and Child Tax Credit has lots of moving parts; part-time and full-time residents would both eligible. The Child Tax Credit was described as a “refundable credit” against Vermont income tax liability. Taxpayers receive $1000 per qualifying child five years old or younger. The payments will change, under this bill, from a lump sum payment (at filing) to a quarterly payment system that the tax department will create. This is similar to how the tax credits for individual health insurance plans work today.

The EITC is a Federal credit against “earned income” which most states bolster with their own tax credit. Vermont’s is currently 38% of the Federal credit and incorporates much of the same eligibility requirements.

Kornheiser jumped in, saying that “our leverage point is that percentage” and that we don’t want to create an “administrative nightmare” (for the Tax Department) by making the eligibility more complex.

A couple of the Committee members worried about the mechanics of the quarterly payments and what might happen if a family was “overpaid” for their tax credit and might owe money back to the state when they go to file their taxes. They were concerned this might confuse people.

Legislative Counsel also flagged that these quarterly payments could impact other benefit eligibility, such as SNAP (food assistance).

Stephanie Yu (Executive Director, Public Assets Institute) provided testimony to the Committee and their goal of advancing the well-being of all Vermonters as well as racial, social, and economic justice.

The moving pieces of expanding credits are being explored by many states, she shared. However, they are struggling with how to pay for these expanded systems. Federal expansion of the EITC credit, she claimed, raised many out of poverty. She asserted that many parents and caregivers spent the money on food and necessary living expenses as well as reducing debt.

One of the Committee members asked how she knew what families spent their tax credits on. Yu indicated that there were some pretty extensive surveys on this. The responses indicated that people spent the credits on a wide variety of household categories.

Because this is a tax credit, Yu noted that there is “some good research that when they got this assistance they worked more.” She pointed to childcare access as one specific area people invested in.

Craig Bolio (Commissioner, Department of Taxes) was up next. He shared a presentation on some of the recent statistics on the Child Tax Credits (CTCs). He was pleased with the ratio of lower income filers who were applying for and receiving the credit (40% of the credits went to filers below 150% of the federal poverty level). Kornheiser pointed out that lower income filers tend to file earlier than average.

Bolio argued that prepayment of the CTC “is no small feat” as it would be “a change of processes and there is a need for resources.” He also questioned issues around taxpayers who move and might be caught up in between payments and end up owing money back to the state, and vice versa. Full prepayment is problematic and raises the need for a “true-up” or clawback when tax situations change.

Kornheiser mentioned that the Committee is interested in potentially increasing both credits. Bolio noted that the Administration is also hoping to increase both and that they would like to see 45% of the federal credit for families with children, and something moderately less than that for all other tax filers.

There is also a provision in the bill that would allow state tax filers to apply for these credits even if they don’t file federal taxes. This largely captures non-citizens who might pay taxes in Vermont.

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