State CTC and EITC

The State Cost-of-Living Refund

05. 04. 2019

State Policy Details for Decision-makers

Click to add an image!

The Cost-of-Living Refund is a bold modernization of a state Earned Income Tax Credit. It pushes the credit further up into the middle class, gives recipients a more generous benefit, expands the definition of work to include caregivers and students, and creates an option for a monthly credit.

A state Cost-of-Living Refund provides a credit that is generally between $1,200 and $2,500 to people who earn less than $75,000 and are working, or are family caregivers or students. Anyone who qualifies for the current federal EITC is eligible as well as middle-class people, younger people, caregivers, and students. The credit amount is larger for most recipients than a simple federal EITC match, including to workers without dependent children, while preserving the principle that low-income people and people with children still receive larger credits. There is also a basic credit that sets a substantial minimum amount for people not on the phase-in/ phase-out.


  • • Raise the income ceiling to $75,000 for all families. (Currently ranges from $15,270 to $54,884 depending on family type.) •
  • Add eligibility for family caregivers with qualifying dependents under age 6, over age 70, or who are disabled.
    • This includes dependents who are age 70+ or disabled but who are not EITC-qualifying dependents. Dependents must have a Social Security number.
  • Add eligibility for students attending in-state higher education institutions at least half-time.
    • Institution may be public or private, but must be non-profit.
    • Half-time status indicated on 1098-T form.
    • Limit to low-income students, eligible for Pell grants or simplified financial aid form.
  • Lower eligibility to age 19. (Currently limited to ages 25-64 for filers with no dependents, except in CA which is currently 18+.)
  • Maintain other existing rules for federal EITC eligibility, including:
    • Retain federal limits on investment income.
    • Retain federal requirement that filers have a Social Security number.
    • Filers may not be claimed as a dependent by another filer

Credit Amount

Begin with 40% of federal EITC credit amount, and a fully refundable state credit.

  • Set the phase-in at 40% of the federal rate for recipients with qualifying dependents.
  • Set the phase-in rate for recipients without qualifying dependents equal to the phase-in rate for recipients with one child.
    • Set the basic credit to $1200, topping up those who get less except on phase-in/out.
  • This is a much more generous credit than the few hundred dollars many recipients get under a typical state EITC.
    • Set caregiver/student credit at $1200 for those with zero or low income:
  • It’s not a flat $1200 on top of their earnings-based credit—rather, we bring them up to $1200 if they are below that, and if they should receive more than $1200 based on their earnings, they get the larger earnings-based credit.
    • Phase-out is the same for all recipients, at a rate of 4.8%.
  • Phase-out is the same for all recipients, beginning at $50,000 of income and phasing out at $75,000 of income. This is more generous than the federal phase-out rate which ranges from about 16-21%.

Additional Policy Details

  • Monthly payments: Create an option to receive the credit monthly. This is the default for credits of $240 or more ($20/month), but recipients may opt into a lump sum payment.
    • Each payment is 1/12 of the EITC for the previous year, not an advance on next year.
  • Electronic: Monthly payments use direct deposit/debit card to avoid check fees.
    • EBT cards could be used, but only with sufficient protections against fees.
  • Notification: A state notifies potential filers in January and recipients before their first payment of the year.
  • Expenses: No more than 2% of increased revenue can go to administrative expenses.
  • Funding: The program is financed by taxes on top earners. Depending on state law, the tax could include an income tax surcharge, a mansion tax (a property tax and a transfer tax), an estate tax, or a capital gains tax, all targeting the wealthiest 1-2% of residents.
  • Free tax prep: Require tax preparers to notify clients eligible for free tax prep
  • Outreach: Provide funding for groups that increase uptake of the tax credit.
  • Rainy day fund: Create a reserve account to help fund the credit during recessions.