As the 2024 legislative season wraps up, several states have made significant strides to support children and families by expanding refundable tax credits. Notably, Colorado, Illinois, New York, Utah, and the District of Columbia have introduced measures to make these credits more accessible and beneficial.
These initiatives aim to provide financial relief, promote equity in tax codes, and ensure that even the lowest-income families can benefit fully from these programs.
Fully Refundable Credits
Among the key changes, two states plus the District of Columbia have ensured that their tax credits are fully refundable. This means that eligible households will receive the full value of the credit, regardless of their state income tax liabilities.
This design is particularly beneficial as it helps counterbalance the regressive nature of other taxes like sales and property taxes, making Earned Income Tax Credits (EITCs) and Child Tax Credits (CTCs) more effective tools for promoting financial equity.
State-Specific Initiatives
Colorado has expanded its Earned Income Tax Credit to match 50% of the federal credit for the 2024 tax year. Additionally, the state introduced the Family Affordability Tax Credit, which can provide up to $3,200 per child during periods of strong economic growth. This new credit supplements the existing Child Tax Credit, offering additional support to families.
Illinois
Illinois has enhanced its state Earned Income Credit for households with children under 12. Starting in 2024, the new child benefit will match the state credit at 40%, phasing in at 20%. This step reflects Illinois’ commitment to supporting families by increasing financial aid.
New York
New York has rolled out a new Child Tax Credit of $420 per qualifying child under the age of 6, which is fully refundable. In addition, the state is set to provide a one-time boost to its Empire State Child Tax Credit in 2024. Lawmakers are also discussing the possibility of merging the Empire State Child Credit and EITC to better target benefits for the lowest-earning families.
Utah
In a significant move, Utah expanded its nonrefundable Child Tax Credit to include children up to age four, previously only available for those up to age three. This expansion aims to provide broader support to families with young children.
District of Columbia
D.C. is set to introduce a new Child Tax Credit, continuing its trend of progressive tax policy measures. This initiative aligns with efforts in other states to provide more substantial support for families.
Broader Trends
These actions are part of a larger trend among states to enhance support for families through tax credits. Following the expiration of federal expansions under the American Rescue Plan Act in 2022, states have increasingly stepped up to fill the gap. Since then, 12 states plus D.C. have created or expanded their CTCs, and 17 states plus D.C. have either introduced or expanded their EITCs. These changes underscore a growing recognition of the importance of these credits in promoting financial stability and reducing poverty.
Dependent Care Credits
Alongside CTCs, the expansion of Child and Dependent Care Credits (CDCTCs) is another significant development. CDCTCs provide partial reimbursement for childcare expenses, helping families manage the costs of care. States like Kansas, Colorado, and Wisconsin have expanded their CDCTCs this year, offering more substantial support.
CDCTCs and CTCs
While both CDCTCs and CTCs are designed to support families, they serve different purposes. CDCTCs act as a reimbursement for paid childcare expenses, requiring families to have sufficient income to afford childcare initially. In contrast, CTCs provide a larger tax return that can be used freely, offering families greater financial flexibility.
The recent legislative changes across various states highlight a collective effort to support families, particularly those with lower incomes. By expanding and refining tax credits, states are working to provide greater financial security and equity. These developments are crucial as they ensure that all families, regardless of income level, can access the support they need to thrive.
FAQs
What is a fully refundable tax credit?
A fully refundable tax credit means eligible households receive the full value of the credit, regardless of tax liabilities.
How has Colorado expanded its tax credits?
Colorado increased its EITC to 50% of the federal credit and introduced the Family Affordability Tax Credit.
What changes has Illinois made to its tax credits?
Illinois enhanced its EITC for families with children under 12, phasing in a new child benefit at 20%.
How is New York supporting families through tax credits?
New York introduced a $420 fully refundable Child Tax Credit and plans a one-time boost to its Empire State Child Tax Credit.
What are the differences between CDCTCs and CTCs?
CDCTCs reimburse childcare expenses, while CTCs provide unrestricted tax returns for broader financial support.
