State Budget Expands Earned Income Tax Credit

The new California budget set to take effect next month includes an expansion of the state’s Earned Income Tax Credit.

That’s a refundable tax credit of up to $2,700 a year available to low-income, working Californians. Alissa Anderson, senior policy analyst for the California Budget and Policy Center, a liberal advocacy group, says there’s traditionally been bipartisan support for the tax break at the federal and state levels.

"It cuts poverty; it makes it easier for families to afford the basics; it encourages work, and it may even contribute to children’s future development," Anderson says.

Lawmakers and Gov. Jerry Brown created the state’s Earned Income Tax Credit two years ago. They designed it to work with the federal credit, which has generally drawn bipartisan support in Washington.

But until now the state hasn’t allowed self-employed Californians to take the tax break. The new state budget changes that.

“The fundamental purpose of the EITC is to encourage and reward work," Anderson says. "But not allowing self-employed workers to qualify sort of undermines that fundamental purpose. So by allowing the self-employed to qualify, our state credit will now incentivize all kinds of paid work."

Additionally, the budget will allow working families with children to qualify for the state credit if they earn up to around $22,000 a year. Under current law, families with kids only qualify if they earn no more than about $14,000 a year.

“And that really matters," Anderson says, "because as our state minimum wage rises to $15 over the next few years, if we don’t adjust the income limits to qualify for the CalEITC, it means fewer and fewer workers will qualify for the credit.”