Earned Income Tax Credits

In some states, certain aspects of earned income tax credit rules cannot be accurately captured with the standard program rules. In those cases, special processing can be invoked through state-specific values of program rule EITCType. Each option is discussed in detail below.

Two points are important to note. First, although these options are state-specific, they can be turned on for any state at any time. (For example, the MD EITC can be turned on for Arkansas). Second, these options make use of other program rules to hold numbers needed in the calculations; they do not use the EITCPct program rule.

ETIC credits (either calculated through these options or by the standard method) are saved in the micro-level variable StateEITC, and are subtracted from StateTaxWithoutCredits in computing final tax liability.

• CA EITC
• DC EITC
• Indiana EITC
• Maryland EITC
• Minnesota EITC
• Ohio EITC
• Rhode Island EITC
• California EITC
• New York EITC

CA EITC

To be eligible for the CA EITC, a unit must be eligible for the federal EITC and either have an eligible child or have EligChildless set to 1 or ChildlessEITCAgeRestriction for the state must be -1 (not applicable).

EligChildless is set to 1 if either of the following conditions is met:

• ChildlessEITCAgeRestriction for the state is equal to 1;
• ChildlessEITCAgeRestriction = 2, the unit has no children, and either the head’s or spouse’s age is within the limits set by ChildlessEITCMinAge and ChildlessEITCMaxAge.

California earned income (EITC_EarnedIncome_CA) is set equal to FedWageAndSalaryIncome of both head and spouse.

If eligible, the CA EITC is calculated as follows:

• If EITC_EarnedIncome_CA < EITCMaxIncome_CA,
  EITC = EITC_EarnedIncome_CA * EITCRate_CA
  where EITCRate_CA is indexed by FedEITCQualifyingChildren.
• Else if EITC_EarnedIncome_CA < EITCPhaseDownPoint_CA,
  EITC = EITCMaxIncome_CA * EITCRate_CA
  where both EITCMaxIncome_CA and EITCRate_CA are indexed by FedEITCQualifyingChildren.
• Else
  EITC = (EITCMaxIncome_CA * EITCRate_CA) – (EITC_EarnedIncome_CA – EITCPhaseDownPoint_CA * EITCPhaseOutRate_CA)
  where EITCMaxIncome_CA, EITCRate_CA, EITCPhaseDownPoint_CA and EITCPhaseOutRate_CA are all indexed by FedEITCQualifyingChildren.

DC EITC

When this option is selected, the DC EITC for families with children is calculated as a percentage of the federal credit. For families with no children, the EITC is calculated using program rules EITCRate0Kid_DC, EITCMaxIncome0Kid_DC, EITCPhaseOutRate0Kid_DC, and EITCPhaseDownPoint0Kid_DC.

Indiana EITC

Indiana decoupled from the federal credit in 2011. ARRA expansions were not adopted. If EITCType is set to "Indiana option" then the value of StateEITC is calculated with the following rules.
EITCMaxIncome_IN = Income level at which the EITC reaches its maximum amount, by number of EITC-qualifying children. EITCMaxIncome_IN marks the beginning of the flat range of the EITC.
EITCRate_IN = Credit rate for the EITC, by number of EITC-qualifying children. The credit rate is multiplied by the tax unit's earned income (up to the amount specified by EITCMaxIncome_IN) to calculate the unit's EITC credit. For units with AGI or earned income above the amount specified by EITCPhaseDownPoint, the amount of the credit is then reduced or eliminated through the phase out.
EITCPhaseDownPoint_IN = Income level at which the EITC begins to phase out, by number of EITC-qualifying children.
EITCPhaseOutRate_IN = Rate at which the EITC phases out, by number of EITC-qualifying children.

If the federal earned income is less than EITCMaxIncome_IN, the credit is equal to federal earned income * EITCRate_IN. Else, if federal earned income is less than EITCPhaseDownPoint_IN, then the credit is equal to EITCMaxIncome_IN * EITCRate_IN. Else the maximum of federal earned income, federal AGI, or federal AGI modified by the EITC is determined (MaximumIncome), and the credit is calculated as EITCMaxIncome_IN * EITCRate_IN - (MaximumIncome - EITCPhaseDownPoint_IN) * EITCPhaseOutRate_IN.

Maryland EITC

If EITCType is set to "Maryland option: choose better of nonrefundable or refundable EITC" then the value of StateEITC is calculated as follows.

Both the refundable and non-refundable EITCs are percentages of the federal EITC. Thus, PotentialRefEITC is equal to EITCRefundable_MD times FedEITC and PotentialNREITC is equal to EITCNonrefundable_MD times FedEITC.

After all other credits have been calculated, we calculate potential tax liability two ways. Once using the value in PotentialNREITC and once using the value in PotentialRefEITC. The credit that results in the lowest tax liability is kept and its value is added into both StateEITC and either StateRefundableCredits or StateNRCredits. Because the credit depends on all other credits and their calculations, we cannot combine this EITC credit with any childcare credit that requires a choice between a non-refundable and refundable credit.

Minnesota EITC

If EITCType is set to "Minnesota option: use MN EIC group rules" then the value of StateEITC is calculated as follows.

A person is eligible for the Minnesota EITC only if the variable contained by variable list rule FedEITCEligibility indicates the person is eligible for the federal EITC simulated by the federal tax module.

The MN EIC works like the federal EITC with one phase-in range, one plateau range, and one phase-out range if the tax unit has zero dependents. For units with at least one dependent, there is an initial phase-in range followed by a plateau followed by another phase-in range followed by another plateau (at which a unit reaches the maximum credit) and then finally a phase-out range. These values are given in the rules: EICPhaseIn_MN, EICPhaseIn2_MN, EICPhaseInRate_MN, EICPhaseInRate2_MN, EICPlateau_MN, EICPlateauEndSingleOrHead_MN, EICPlateauEndJoint_MN, EICPhaseOutRate_MN and EICMaxCred_MN.

Before calculating the value of the credit earned income must be calculated. This is equal to EarnedIncome for both the head and the spouse (if present). If this value is negative, it is then set to zero to avoid a negative credit.

If a unit's earned income is at or below EICPhaseIn_MN, StateEITC is equal to EICPhaseInRate times earned income.

If a unit's earned income is between EICPhaseIn_MN and EICPhaseIn2_MN, StateEITC is equal to EICPhaseIn_MN * EICPhaseInRate_MN.

If earned income is between EICPhaseIn2_MN and EICPlateau_MN then StateEITC = EICPhaseIn_MN * EICPhaseInRate + ( earned income - EICPhaseIn2_MN ) * EICPhaseInRate2_MN.

If earned income is between EICPlateau_MN and appropriate EICPlateauEnd..._MN, then StateEITC = EICMaxCred_MN.

If a single or head-of-household unit's earned income is above EICPlateauEndSingleOrHead_MN, then StateEITC is equal to EICMaxCred_MN - (earned income - EICPlateauEndSingleOrHead_MN) * EICPhaseOutRate_MN), floored at zero.

If a joint unit's earned income is above EICPlateauEndJoint_MN, then StateEITC is equal to EICMaxCred_MN - (earned income - EICPlateauEndJoint_MN) * EICPhaseOutRate_MN), floored at zero.

These calculations are repeated using federal AGI instead of earned income. The minimum of these two calculations is returned. This is done so that tax units with high federal AGI do not qualify for the credit.

NY EITC

To be eligible for the NY EITC, a unit must be eligible for the federal EITC and either have an eligible child or have EligChildless set to 1 or ChildlessEITCAgeRestriction for the state must be -1 (not applicable).

EligChildless is set to 1 if either of the following conditions is met:

• ChildlessEITCAgeRestriction for New York is set equal to 1;
• ChildlessEITCAgeRestriction = 2, the unit has no children, and either the head’s or spouse’s age is within the limits set by ChildlessEITCMinAge and ChildlessEITCMaxAge.

The NY EITC is initially calculated as the federal EITC times EITCPct for the state (indexed by FedEITCQualifyingChildren). Then the tax before credits (the state tax amount that is obtained by applying the rates and brackets to taxable income) is compared with the New York Household Credit (if that credit is implemented via program rule OtherTaxCreditType. The smaller of the two amounts is subtracted from the initial computation of the EITC for the final EITC amount. The household credit is computed as HHCreditBaseAmt_NY for the unit's bracket and filing status plus HHCreditAdditions_NY for the unit's bracket and filing status times number of state tax exemptions minus 1.

Ohio EITC

Beginning in 2013, Ohio implemented a non-refundable earned income tax credit. If state taxable income is <= the amount in EICTaxBase_OH, the credit is calculated as the lessor of 3 or the number of dependent children times the amount in EITCPct. However, if taxable income exceeds the amount in EICTaxBase_OH, then the credit is calculated as the minimum of half the tax after credits or federal EITC times the amount in EITCPct.

Rhode Island EITC

If EITCType is set to "Rhode Island option: use RI EIC group rules" then the value of StateEITC is calculated as follows.

The non-refundable EITC is a percentage (EITCPct) of the federal EITC given by FedEITC with StateTaxWithoutCredits setting the maximum possible non-refundable EITC. If a person has a credit larger than their tax liability, then this person receives the percentage given by EITCNonRefAddOn_RI of this remainder as a refundable credit.