Virginia legislature votes to decouple state EITC from Recovery Act EITC expansions
April 27th, 2010
The Virginia legislature recently voted to decouple the state’s 20 percent non-refundable Earned Income Tax Credit from the federal EITC. The federal EITC was expanded in the American Recovery and Reinvestment Act for tax year 2009 and 2010. The expansions include a higher credit for families with three or more children and reducing the marriage penalty.
The Virginia General Assembly originally proposed to decouple the EITC for tax years 2009 and 2010, but by the time the state legislative session began in mid-January, tax forms were already distributed and families had already begun claiming the state EITC making changes for tax year 2009 impossible.
A coalition of advocates, who were already working to expand the state EITC by making it refundable, quickly coordinated their efforts to prevent the governor and legislature from separating the state and federal EITC. Michael Cassidy, executive director of The Commonwealth Institute for Fiscal Analysis, a think tank focusing on state fiscal issues, notes that the coalition activated its own members through action alerts and telephone calls to the governor’s office.
In addition to providing data to the coalition members about the impact of this change, the Commonwealth Institute released a formal report analyzing how decoupling the state EITC would effect Virginia families. The report states that the change will raise taxes by $6 million for approximately 114,000 Virginia families who earn less than $49,000 a year. The tax increases for individual families are pretty substantial, too. The report estimates that for a married couple with three children, whose income is between 125 and 150 percent of poverty, the average tax increase in 2010 is $205 and for single parents with three children at those income levels, the average tax increase is about $125.
The increasing pressure from the EITC coalition, along with the Commonwealth Institute report release and press coverage of the issue forced the governor’s press secretary to make a verbal commitment that the governor will repeal the change to the EITC. While this commitment is the right move, the governor will have to address the issue before the 2011 legislative session (scheduled to begin in mid-January 2011) in order to avoid even further confusion on this important issue. The new changes add significant complexity for EITC filers since this new law means the state tax department will have to produce new guidelines and tax tables for calculating the state EITC for taxpayers, professional and nonprofit tax preparers. In addition, if the governor waits until the start of the 2011 session to propose a fix, the tax filling process will be well underway and would be further complicated by a repeal of these changes.
The governor may call a special session later this year to address government reform or transportation funding. Such a session could be an opportunity to repeal the change to the state EITC sooner rather than later. Meanwhile, the EITC coalition will continue its efforts to see the EITC changes repealed to ensure that low- and moderate-income Virginia families will not experience a state tax increase in 2010.
Read the Commonwealth Institute’s report
Read an editorial by the Virginian-Pilot
Read the AP story about report
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