Tax Credits for Working Families

Michigan

Earned Income Tax Credit^

Income Tax Rate: 4.25%

State EITC: Yes

Refundable: Yes

Enacted: 2006

Formula: Originally 20 percent of federal EITC, in 2011 the legislature passed and governor signed a law changing the rate to 6 percent of the federal EITC after December 31, 2011.

News/Notes: In September 2006, Governor Jennifer Granholm signed legislation to create a state EITC. In tax year 2008, over 711,000 filers claimed $145.2 million dollars through the Michigan EITC.1  

In January 2011, legislative leaders indicated that they were considering Governor Rick Synder’s proposal to eliminate the state EITC to help offset business tax cuts and balance the state budget. On February 8, 2011 Senator Roger Kahn (R-Saginaw) introduced Senate Bill 103, which would eliminate the Michigan EITC for tax years 2011 and beyond. The bill would raise taxes on 800,000 working families and push 14,000 children into poverty.

On April 20th, Lt. Governor Brian Calley announced in testimony before the House Tax Policy Committee that the administration had agreed to provide a credit of $25 per child for filers who had qualified for the state EITC. The child credit was estimated to cost about $25 million. The proposal also included a revised circuit breaker Homestead Property Tax Credit announced by the governor on April 12th, which would expand benefits for families with incomes below $20,000 a year, while reducing or eliminating benefits for senior citizens and many moderate-income families. The change, however, would virtually eliminate the poverty protection of the current state EITC, with about 14,000 children still expected to be pushed below the poverty line despite the child tax credit.

On April 27, the House Tax Policy Committee approved tax legislation that included the child tax credit plan for EITC-eligible families, which was taken up by the full House and passed by a vote of 56-53 in the House the following day.

On May 10,  S-2, a substitute to HB 4361, was introduced with the support of the administration. This revised version of the tax overhaul legislation would preserve the state EITC at 6 percent of the federal EITC, instead of the current 20 percent. The proposed $25 child tax credit is not included. The final version of HB 4361, which contained this proposal, passed both the House and Senate and and was signed by the governor on June 21. The new EITC rate will go into effect for tax years beginning after December 21, 2011 (see section 272).

In 2012, legislation was introduced to raise the EITC back to 20 percent of the federal EITC.  House Bill 5407 was sponsored by all Democrats. On July 18, 2012, Rep. Ananich introduced House Bill 5769, which would restore the state EITC from 6 percent to 20 percent of the federal EITC. The bill would also give up to $150 in matching grants to an EITC recipient who places at least $50 in a “qualified savings account.” The bill was referred to the Committee on Tax Policy, but no further action was taken in 2012.

In January 2013, Senate Bill 128 and House bill 4266 were introduced to restore the credit to  20 percent of the federal EITC. House Bill 4391 was also introduced, which would raise the Michigan EITC to 25% of the federal EITC. Democrats hoped to get Republican support for the EITC in return for supporting some Republican legislation that will require Democrat votes to pass. However, no legislation was passed that year.

In 2014, Democrats want to include an increase to the state’s EITC in a long-term road funding package currently being discussed.

Reports/Materials: Dynamic duo: minimum wage and EITC, Judy Putnam, Michigan League for Public Policy, September 2014

Cuts to Michigan EITC Raise Taxes on Working Families, Michigan League for Public Policy, April 2014

EITC is perfect vehicle for the governor, Gilda Z. Jacobs, Michigan League for Public Policy, February 2014

For kids, deep disparities persist, Pat Sorenson, Michigan League for Public Policy, July 2013

Working family tax credits help Michigan’s military families, Michigan League for Public Policy, July 2013

Micah Center: Restore the Earned Income Tax Credit to help struggling families (Guest column), Chuck Clemence, MLive.com

Michigan’s surplus can help fill unmet needs, Stephen Henderson, The Detroit Free Press, May 2013

Guest column: Use a small portion of Michigan’s unanticipated revenues to restore Earned Income Tax Credit, MLive.com, May 2013

2013 Mother’s Day Report: The Federal Earned Income Tax Credit & Child Tax Credit, Michigan League for Public Policy, May 2013

We can afford to restore the Michigan EITC, Save Our EITC, May 2013

Tax increase on working families, Michigan League for Public Policy, April 2013

EITC helps military families, Michigan League for Public Policy, March 2013

The Michigan EITC: A Small Investment that Makes a Big Difference, Yannet M. Lathrop, Michigan League for Public Policy, February 2013

Money Back in Michigan for Tax Year 2012, Michigan League for Public Policy, February 2013

Michigan 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

Tax Cut? Or Not? Karen Holcomb-Merrill, Michigan League for Human Services, May 2012

A Question of Fairness, Jack Lessenberry, Dome Magazine, May 2012

Mich. families will see $244 million tax hike from EITC cut: Workers in Detroit, Battle Creek, Sagniaw, West Michigan lose the most, Michigan League for Human Services, May 2012

Earned Income Tax Credit Fact Sheet: How the Michigan EITC Benefits the Each District (House), Michigan League for Human Services, May 2012

Earned Income Tax Credit Fact Sheet: How the Michigan EITC Benefits the Each District (Senate), Michigan League for Human Services, May 2012

Earned Income Tax Credit Fact Sheet: How the State EITC Benefits Michigan, Michigan League for Human Services, May 2012

How the Budget Can Create Economic Opportunity, Michigan League for Human Services, March 2012

Earned Income Tax Returns, Refund Anticipation Loans and Tax Preparation Methods, by House District, Michigan League for Human Services, March 2012

Earned Income Tax Returns, Refund Anticipation Loans and Tax Preparation Methods, by Senate District, Michigan League for Human Services, March 2012

Earned Income Tax Credit Returns, Refund Anticipation Loans and Tax Preparation Methods, by County, Michigan League for Human Services, March 2012

Earned Income Tax Credit Returns, Refund Anticipation Loans and Tax Preparation Methods, by Michigan House District, Michigan League for Human Services, March 2012

Earned Income Tax Returns by Michigan Senate District, Michigan League for Human Services, March 2012

Letter to Lt. Gov. Calley: Proposed enhancements to the Homestead Property Tax Credit and a $25 child credit are not an acceptable substitute for the EITC, Michigan League for Human Services, April 2011

Michigan Income Tax Liability Comparison of Current Law vs Governor’s April Proposal, Michigan League for Human Services, April 2011

76% of Michigan voters oppose ending Michigan tax credit for working poor, Save Our EITC, February 2011

Human services, children’s, religious groups support EITC, Save Our EITC, February 2011

Kids, seniors, families lose, Michigan League for Human Services, February 2011

Sample Taxpayer’s Michigan Income Tax Liability and EITC at Selected Incomes, Michigan League for Human Services,February 2011

Titanic shift in Lansing, Michigan League for Human Services, February 2011

Fact Sheet: Michigan’s Earned Income Tax Credit, Michigan League for Human Services, January 2011

Keeping Kids Out of Poverty with the Michigan Earned Income Tax Credit, Michigan League for Human Services, January 2011

Money Back in Michigan: “Returning Tax Dollars to Low-Income Michigan Households” Tax Year 2010, Michigan League for Human Services, January 2011

Talking Points for Protection of the State EITC, Michigan EIC, 2011

Letter to Governor Snyder, Michigan League for Human Services, January 2011

Benefit of the Michigan EITC for Various Income Levels, Community Economic Development Association of Michigan, 2010

Statewide and County Impact of the Michigan Earned Income Tax Credit, Michigan League for Human Services, July 2010

Got Skin in the Game?, Melissa K. Smith, Michigan League for Human Services, July 2010

Michigan Earned Income Tax Credit: TY 2008, Office of Revenue and Tax Analysis, Michigan Department of Treasury, March 2010

Money Back in Michigan: “Returning Tax Dollars to Low-Income Michigan Households” Tax Year 2009, Michigan League for Human Services, January 2010

Michigan’s New Earned Income Tax Credit, Michigan League for Human Services

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

Michigan’s State Earned Income Tax Credit: Year One, Michigan League for Human Services, September 2009

Economic Benefits of the Earned Income Tax Credit in Michigan, Anderson Economic Group, August 2009

Money Back in Michigan: Returning Tax Dollars to Low-Income Michigan Households, Michigan League for Human Services, January 2008

Rewarding Work and Helping Families: Why a State Earned Income Credit Makes Sense for Michigan, Michigan League for Human Services, July 2005

A Hand Up For Michigan Workers: Creating a State Earned Income Tax Credit, Patrick L. Anderson, The Michigan Catholic Conference, October 2002

Video and Radio PSAs:Michigan Earned Income Tax Credit – Free tax preparation available, Michigan EIC, December 2008

Michigan Earned Income Tax Credit – You Earned It – You Keep It, Michigan EIC, December 2008

Public Service Announcement, Michigan Association of United Ways

Articles/Op-eds: Extending tax credits is key to fighting poverty, Nancy Miller, Holland Sentinel, April 13, 2010

Michigan’s regressive tax system, Ed Brayton, the Michigan Messenger, November 20, 2009

Letter to Michigan Citizens, Michigan Catholic Conference, August 2002

Child Tax Credit^

State Credit: No

Child and Dependent Care Tax Credit^

State Credit: No

Property Tax Circuit Breaker^

Circuit Breaker: Yes, referred to as the Homestead Credit

Refundable: Yes

Eligibility: For the 2010 session, all homeowners and renters with income below $82,650

Formula: The credit equals the difference between property taxes owed, and 3.5 percent of income, not to exceed $1,200. Renters calculate their property taxes as 10 percent of rent paid. For filers with income between $73,650 and $82,650, the credit is reduced by 10 percent for each $1,000 of income in excess of $73,650.

Senior citizens and disabled filers who earn less than $6,000 have a lower circuit breaker threshold:

Income

Percentage of Income to Trigger Circuit Breaker

≤ $3,000

0 percent

$3,001-$4,000

1 percent

$4,001-$5,000

2 percent

$5,001-$6,000

3 percent

> $6,000

3.5 percent

Changes to this formula are expected to become law and take effect in tax year 2011 (see News/Notes below).

Notes/News: In 2009, roughly 1.6 million homeowners and renters claimed the circuit breaker Homestead Credit.

Michigan also has an Alternate Property Tax Credit for renters over 65 who may not qualify for a Homestead Credit. For more information on the credit, see Worksheet 6 for Form MI-1040CR.

In the 2011 legislative session, a number of changes were made to the Homestead Property Tax Credit in HB 4361, (which was sent to the governor on May 17, 2011 and signed into law on June 21.) According to the Senate summary, those changes include:

a. Taxpayers will no longer be eligible for the credit if the taxable value of their homestead exceeds $135,000. (For a new home, this limit would equate to a sale value of $270,000.)

b. The credit will be phased out starting at total household resources of $41,000 and be eliminated once total household resources reached $50,000. Under prior law, the phase-out did not begin until household income exceeds $73,650.

c. Under prior law, the credit equaled some percentage of the property taxes that exceed 3.5 percent of household income, regardless of income. The applicable percentage varied, with most taxpayers receiving 60 percent, while seniors and disabled individuals were able to receive 100 percent. The bill will eliminate the difference in rates between seniors and most taxpayers, basing the computation on total household resources, and vary the applicable percentage based on total household resources. For taxpayers with income of $21,000 or less, the bill would make the applicable percentage 100 percent, phasing it down in four percentage point increments every $1,000 of household resources until the applicable percentage declined to 60 percent for household resources of $30,000.

The bill also changed household income to “total household resources”. The primary difference between the two concepts is that “total household resources” would be intended to exclude any subtractions due to net business, rental, or royalty losses.

We have not yet located an analysis of the number of households affected.

 

Reports/MaterialsMichigan Income Tax Liability Comparison of Current Law vs Governor’s April Proposal, Michigan League for Human Services, April 2011

1 Michigan EITC: Office of Revenue and Tax Analysis Report for TY 2008