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Indiana | Tax Credits for Working Families

Tax Credits for Working Families

Indiana

Earned Income Tax Credit^

Income Tax Rate: 3.4 percent

State EITC: Yes

Refundable: Yes

Enacted: Indiana enacted a state EITC in 1999, but it was not based on the federal EITC. In 2003, Indiana switched to an EITC model that replicated the federal program.

Formula: 9 percent of the federal EITC

Notes/News: As part of a property tax reform package, the Indiana General Assembly increased the state EITC from 6 to 9 percent effective tax year 2009. In 2009, the Indiana Senate introduced legislation to further increase the state EITC from 9 to 13 percent of the federal credit beginning tax year 2010, but the bill failed to be enacted.

During the 2011 Session the budget bill HB 1001 decoupled Indiana’s State EITC eligibility guidelines from the federal guidelines originally expanded under the recovery act. As a result, those claiming Indiana’s EITC no longer benefit from the larger EITC payment to families with three or more children. Also, they no longer benefit from the reduction of the “marriage penalty,” which started the income phase out at a higher income level for married couples.

On January 9, 2012, State Senator Brandt Hershamn introduced Senate Bill 344, which would, among other things, end the state Earned Income Tax Credit and other credits in 2016, and compel the state’s Commission on State Tax and Financing Policy to determine which credits merit reinstatement prior to the 2016 sunset.  If the state EITC is eliminated, that would raise taxes on about 500,000 low- and moderate-income working families (nearly 15 percent of the population) by $86 million in 2012. A large group of advocates testified against the bill at a hearing on January 17, and the bill was modified to eliminate the clause ending the EITC by 2016, but it continued the requirement that it and other tax credits be studied and considered for elimination in 2012 and 2013.

Reports/Materials: Indiana 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

The Cliff Effect: One Step Forward, Two Steps Back, Indiana Institute for Working Families, October 2012 (EITC information on page 12)

Income Tax Credit Study Meeting Minutes, Commission on State Tax and Financing Policy, September 2012

Testimony before the Senate Committee on Tax and Fiscal Policy, Jessica Fraser, Indiana Institute for Working Families, January 17, 2012

Policy Brief: Earned Income Tax Credit (EITC), Indiana Institute for Working Families, May 2011

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

Income inequality has increased in Indiana over the past two decades, Center on Budget and Policy Priorities and Economic Policy Institute, 2008

Is Indiana Getting Its Fair Share: Federal Programs Available to Help Working Hoosier Families, Indiana Institute for Working Families, July 2008

Child Tax Credit^

State Credit: No

Child and Dependent Care Tax Credit^

State Credit: No

Property Tax Circuit Breaker^

Circuit Breaker: No

Notes/News: Indiana uses the term “circuit breaker” to refer to its property tax relief program, even though it does not fit the definition of a circuit breaker. Indiana’s program ties relief to property value, not claimant’s income, offering deductions to homeowners and renters based on their property tax liability. Since this program is not designed to prevent property taxes from exceeding a taxpayer’s ability to pay, it does not protect a taxpayer from a property tax “overload” and is not a circuit breaker program.

Reports/Materials: The Truth about the November Property Tax Vote, Indiana Institute for Working Families, December 2010

 

Many homestead properties experience an increase in property tax bills despite Indiana’s Property Tax Caps, The Indiana Institute for Working Families, May 2010

Indiana Property Tax Caps: Should they be in the constitution?, The Indiana Institute for Working Families, February 2010

Indiana Property Tax Caps: Using Dollars and $ense to Make the Right Decision, The Indiana Institute for Working Families, January 2010

The Truth about the November Property Tax Cap Vote, The Indiana Institute for Working Families