Tax Credits for Working Families


**California is one of only four states to regulate paid tax preparers.

Earned Income Tax Credit^

Income Tax Rate: Graduated 1.25-9.55 percent

State EITC: Yes, enacted in 2015

Refundable: Yes

Formula: 85 percent of the federal credit up to half  of the federal phase-in range.

News/Notes: California became the 26th state to enact a state-level EITC in 2015 after battling numerous budget shortfalls that limited the state’s ability to enact major program initiatives. In January 2015, State Senator Bob Hertzberg announced SB 8, the Upward Mobility Act, that included the creation of a state EITC. Assemblyman Mark Stone also introduced AB 43, which would create a refundable state EITC. Families with children under 5 would receive 35 percent of the federal credit, and those with children over 5 would get 15 percent. Meanwhile, childless workers would receive up to 60 percent of the federal credit. The measure was altered in California’s budget to equal 85 percent of the federal credit up to half  of the federal phase-in range, and was signed into law by Gov. Jerry Brown in June 2015.

In 2016, lawmakers are considering AB 1847, a bill that would make the state’s EITC refundable and require all employers to educate their employees who may be eligible about the EITC.

San Francisco has a city EITC called the Working Families Credit.

Reports/Fact Sheets: California State & Local Taxes, from Who Pays? A Distributional Analysis of the Tax Systems in All 50 States, Institute on Taxation and Economic Policy, January 2013

California: State and Local Taxes in 2007, Institute on Taxation and Economic Policy, November 2009

Delivering a Local EITC: Lessons from the San Francisco Working Families Credit, Tiana Wertheim and Tim Flacke, The Brookings Institution, May 2006

How Can a State Earned Income Tax Credit Help the Working Poor Make Ends Meet? California Budget Project, January 2002

Child Tax Credit^

State Credit: Yes, called the “Dependent Exemption Credit” or “Dependent Tax Credit”

Refundable: No

Formula/Eligibility: For 2012, the maximum credit is $309 per dependent. The credit is reduced for higher-income taxpayers as follows1:

Filing Status Reduce each credit by: For each: Federal AGI exceeds:
Single $6 $2,500 $162,186
Married/RDP filing separately $6 $1,250 $162,186
Head of Household $6 $2,500 $243,283
Married/RDP filing jointly $12 $2,500 $324,376
Qualifying widow(er) $12 $2,500 $324,376

: The California legislature reduced the maximum Dependent Tax Credit from $309 to $99 per dependent (indexed for inflation) for tax years 2009 and 2010, and in his 2011-2012 budget, Governor Jerry Brown proposed extending the reduction through 2015. While any budget that prolonged the reduction in the Dependent Tax Credit and other temporary tax increases faced continued opposition in the legislature, it is possible that a proposal to cut the credit will resurface again, as California faces another difficult budget year.

Child and Dependent Care Tax Credit^

State Credit: Yes, called the Tax Credit for Child and Dependent Care Expenses

Refundable: No

Eligibility: Filers must have work-related income, live with the dependent for at least half the year, and earn less than $100,000. Generally, the credit can only be claimed by joint filers.2

Tax Credit Formula: The state credit varies based on the income of the filer. Filers earning less than $40,000 may claim 50 percent of the federal credit.

Filers earning between $40,001 and $70,000 may claim 43 percent of the federal credit.

Filers earning between $70,001 and $100,000 may claim 34 percent of the federal credit.

All other filers earning more than $100,000 are ineligible for the state credit.

News/Notes: In order to be considered an eligible expense, child/dependent care must be provided in California and meet requirements for the federal CDCTC, except that registered domestic partners may also claim the credit.

On March 3, 2011, the Budget Conference Committee passed a $26.6 billion package of solutions aimed at closing the state’s $26.6 billion budget shortfall. Roughly divided between spending reductions and new revenues, the package included the elimination of the refundable portion of the state’s Tax Credit for Child and Dependent Care Expenses. Since the nonrefundable portion would be retained, the proposal impacts only the lowest-income families with child care expenses.

On March 17, the California legislature approved legislation (SB 86) that repealed the refundable portion of the credit, a benefit that is worth $70 million to California’s lowest-income families with children. Signed into law by the governor, the credit is nonrefundable, effective immediately.

Property Tax Circuit Breaker^

Circuit Breaker: No

Refundable: No

Notes/News: California does not offer a circuit breaker credit but it does offer an income tax credit to renters with an income below $34,412 ($68,824 if filing jointly). The Renter’s Credit is applied against the filer’s income tax and bears no relation to actual rent or property taxes paid. The income cap changes each year because it is indexed based on the California Consumer Price Index.3

Taxpayers who are married or have a registered domestic partner and meet the eligibility criteria receive a credit of $120. Taxpayers who file as head of household or who are widowed receive a credit of $120. Single filers who meet the eligibility criteria receive a $60 credit.

1 2010 California Tax Rates and Exemptions, State of California Franchise Tax Board

2 Exceptions can be found on page two of Instructions for Form FTB 3506

3 California Rev. & Tax. Code §17053.5