Background

HISTORY

The federal earned income tax credit (EITC) grew out of the welfare reform efforts of the early 1970s. The credit was originally added to the Internal Revenue Code by the Tax Reduction Act of 1975 as a small credit of up to $400 for low-income workers with children. Subsequent revenue acts extended the credit, and the Revenue Act of 1978 made it a permanent part of the Internal Revenue Code. Since that time, the EITC has continued to expand in size and importance.

The credit was expanded significantly in 1986 as part of a major federal tax law overhaul, and again in 1990 to include a supplementary credit for families with two or more children. In 1993 President Bill Clinton made the EITC the centerpiece of his strategy to support minimum wage workers, doubling the amount of the credit and creating a small tax credit for very low-income workers without children. The 1990 and 1993 expansions together almost tripled the program’s cost. By 1996, spending on the EITC exceeded all federal and state welfare payments under the Aid to Families with Dependent Children program, and by 1998, it surpassed all expenditures under the SNAP Program. Today, the federal EITC is the largest tax benefit for families with children generally.

As the federal EITC became a more significant policy tool, states themselves began adopting the idea of a state earned income tax credit. The creation of the Temporary Assistance for Needy Families (TANF) program stimulated additional growth in state EITCs by allowing states to use TANF funds to pay for part of the costs of a state credit. New York implemented its state earned income credit (EIC) in 2000, and fully implemented it in 2003.

The New York City EITC took effect in August 2004. It is one of the only locally administered EITC’s in the country.

WHO ADMINISTERS THE PROGRAM

The federal Earned Income Tax Credit (EITC) is administered by the Internal Revenue Service (IRS). The New York State Earned Income Credit and New York City Earned Income Credit are both administered by the New York State Department of Taxation and Finance.

FUNDING

Unlike a government benefit, which is funded through specific allocations and expenditures, federal tax credits are dispersed from tax revenue collected by the IRS, including the federal Earned Income Credit.

The New York State Earned Income Credit is funded both through state payroll taxes, and from federal grant monies to states, the Temporary Assistance for Needy Families (TANF) funding.

Summary of the Earned Income Tax Credit

The federal EITC is the country’s largest anti-poverty program. It is a refundable income tax credit for low and moderate income working individuals and families.

Related Tax Credits

NEW YORK STATE EARNED INCOME CREDIT

The New York State Earned Income Credit (EIC) is equal to 30% of the federal EITC. For New York Residents, the EIC will reduce the amount of tax owed or increase the amount of a refund. For individuals who are not residents of New York, the credit will only reduce the amount of tax owed – no refund is available. To qualify for the NYS EIC an individual must claim the federal EITC in that tax year. Information about the New York State Earned Income Credit is included in each section (Description, Qualifying For and Applying For) of the Earned Income Tax Credit.

NEW YORK CITY EARNED INCOME CREDIT

The New York City Earned Income Credit (NYC EIC) is 5% of the federal EITC. The credit is given in addition to the federal and New York State earned income credits. The city credit either reduces the amount of city tax owed or increases the amount of the refund received. Only New York City full-year residents and part-year residents may claim a New York City earned income credit. For part-year city residents, the amount of the credit is subject to pro-ration. Information about the New York City Earned Income Credit is included in each section (_Description, Qualifying For _and Applying For) of the Earned Income Tax Credit.

NON-CUSTODIAL PARENT NEW YORK STATE EARNED INCOME CREDIT

The Non-custodial Parent NYS Earned Income Credit is a new enhanced Earned Income Tax Credit for taxpayers who are non-custodial parents and who are current with their child support payments. The Office of Temporary and Disability Assistance (OTDA) will administer the enhanced tax credit. See below Non-Custodial Parent NYS Earned Income Tax Credit.

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Tax Credits

 
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