The federal Earned Income Tax Credit (EITC) has long been recognized for being one of the most effective policy tools encouraging work and reducing poverty. In addition to those benefits, the EITC is associated with healthier babies, better educational outcomes, and increased lifetime earnings. These benefits are the reason why a growing number of states (up to 29 plus D.C.) have enhanced the federal credits by enacting their own state-level EITCs.
But beyond adding the benefits of the federal EITC with additional income support to low-income working families, state EITCs can boost participation in the federal credit, resulting in more people receiving benefits and a greater economic impact in the state.
According to the IRS, roughly 83 percent of EITC eligible tax filers in West Virginia actually apply for the credit. That means there are approximately 31,000 tax filers in West Virginia who could receive the EITC, but don’t. With the average EITC benefit in West Virginia equal to $2,241, West Virginians are missing out on $71.2 million each year by not claiming the EITC.
There are several reasons to explain why some eligible tax filers do not participate in the EITC. Many are simply unaware of the program or unaware that they are eligible. To receive the federal EITC, eligible workers must file a federal tax return, even if their income is below the federal filing requirement. Because of this, many eligible workers may not be familiar with how to file a tax return, or even know that refundable credits are available.
Recent research has found that enacting a state EITC can increase participation in the federal EITC, particularly for single workers with children. And maximizing participation in the federal EITC is a good idea for states. Not only does increasing participation improve the economic circumstances of low-income families, but state and local economies benefit from the increase in federal tax dollars flowing communities.
When states pass an their own EITC, they usually do so in conjunction in outreach efforts to promote both state and federal EITCs. Partnering with community-based organizations, non-profits, and other government agencies to raise awareness of their own EITC, by default raises awareness and participation of the federal EITC, since in order to receive a state or local EITC, qualifying
workers must file a state tax return and have already filed a federal tax return and completed the federal EITC application.
Even a small boost in participation in the federal EITC would mean millions of federal dollars being pumped into West Virginia, benefiting thousands of low-income families. Every 1 percentage point increase in West Virginia’s 83 percent participation rate means an additional 1,800 tax filers would recieve the EITC, with benefits totaling $4.1 million.
So if West Virginia would were to boost participation in the federal EITC by 5 percentage points, bringing the state’s participation rate up to 88 percent, more than 9,300 West Virginia tax filers would benefit, with approximately $21 million pumped into the state’s economy. And enacting a WV state EITC would be the perfect opportunity to make that happen.
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