Tax Credits for Working Families

Wisconsin

Earned Income Tax Credit^

State Income Tax: Graduated, 4.6-6.75 percent

State EITC: Yes

Refundable: Yes

Enacted: 1989

Formula: The credit is calculated based on the number of children claimed as dependents by the filer. For tax year 2011, filers with one child may claim four percent of the federal credit. Filers with two children may claim 11 percent, and filers with three or more children may claim 34 percent of the federal EITC.

Notes/News: In 2008, 243,131 Wisconsin filers claimed over $95 million in state earned income credits.1 More than 80 percent of the total cost of the Wisconsin EITC is covered through the use of Temporary Assistance for Need Families (TANF) funds. Because Wisconsin has a large structural deficit in its TANF budget, the heavy reliance on that funding source creates a challenge for the state in the years ahead.

In July 2010, Wisconsin initiated a new transitional jobs pilot program for jobless adults who don’t have access to unemployment benefits. In contrast to the state’s other welfare reform programs, workers in the new pilot program will be eligible for the state and federal EITC and the Property Tax Circuit Breaker, known as the Homestead Tax Credit. State fiscal analysts expect it to increase the cost of the state EITC by $1 million per year.

Although the Wisconsin EITC appears to be politically popular, on March 1, 2011, Governor Scott Walker introduced his 2011-2013 biennial budget, which called for reducing  the EITC by $41.3 million over the next two years.

On Tuesday, May 31, the Joint Finance Committee adopted a change to the EITC that would modify the Governor’s proposal, increasing the total size of the EITC cut to $56.2 million, and changing how families will be affected. Families with two children will only be able to claim 11 percent of the EITC, compared to the current 14 percent, a less severe cut than the governor proposed, and families with three or more children will be able to claim 34 percent instead of 43 percent, a more severe cut than under the Governor’s proposal. Under the JFC proposal, families with two children will have a maximum cut of $154 (compared to $307 in the Governor’s plan), and families with three or more kids will face a maximum cut of as much as $518 (versus $154 in the Governor’s bill).

The legislature passed the budget without changing the EITC provision, and the governor signed it on June 26. Despite reducing the credit, Wisconsin will continue to provide one of the higher state EITC benefits in the country.

In May, 2012, Wisconsin  learned that revenue estimates were up, and advocates began calling for using some of the new revenues to restore the tax credits that were reduced in 2011.

In 2013 Wisconsin has a budget surplus and the governor released a budget calling for income tax cuts that would primarily benefit those making $30,000 or more. Advocates are recommending that instead the surplus be used to restore the EITC cuts made in 2011. However, an amendment to restore the EITC was voted down in the Senate and the final budget, which the governor is expected to sign, leaves the EITC at its current level.

Reports/Materials: Missing Out: Recent Tax Cuts Deliver Little to People Who Earn the Least, Wisconsin Budget Project, June 2014

Top 10 Reasons to Increase Tax Credits for Low-income Households, Wisconsin Budget Project, February 2014

Low-income Families Contributed to the Budget Surplus, Jon Peacock, Wisconsin Budget Project, February 2014

Taking Stock of the Earned Income Tax Credit on EITC Awareness Day, Jon Peacock, Wisconsin Budget Project, January 2014

TANF Funds for the Earned Income Tax Credit (Children and Families – Economic Support and Child Care), Legislative Fiscal Bureau, May 2013

Wisconsin 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

Wisconsin’s Earned Income Tax Credit Helps Keep Rural Families Out of Poverty, Wisconsin Budget Project, January 2013

KIDS COUNT Data Feature: EITC Critical to Wisconsin Families All Across the State, Wisconsin Council on Children and Families, January 2013

Income Changes during the Recession for “Working Poor” Single Parent Families in Central City Milwaukee, Lois M. Quinn and John Pawasarat, University of Wisconsin-Milwaukee, December 2012

Budget a Betrayal of Wisconsin Values, Wisconsin Council on Children and Families, June 2011

Effects of the Biennial Budget and Budget Repair Bills for Working Families, Wisconsin Council on Children and Families, June 2011

Joint Committee on Finance Paper #312: Earned Income Tax Credit, Rick Olin, Wisconsin Legislative Fiscal Bureau, May 2011

Letter to the Joint Finance Committee Re: Budget Paper #312: Earned Income Tax Credit, Ken Taylor, Wisconsin Council on Children and Families, May 2011

The Budget’s Real-Life Impact on Wisconsin Families, Tamarine Cornelius, Wisconsin Council on Children and Families, May 2011

Outreach Flyer for Refundable Tax Credits (Spanish and Hmong), Wisconsin Budget Project, December 2009

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

Wisconsin Taxes Hit Poor and Middle Class Far Harder Than the Wealthy, Institute on Taxation and Economic Policy, January 2003

EITC Education Helps Working Wisconsin Families, University of Wisconsin Family Living Program, November 2002

The Use of Earned Income Tax Credits in Wisconsin, Wisconsin Budget Project, December 2000

Articles: Will Walker Raise Taxes for the Working Poor?, Jon Peacock, Wisconsin Budget Project, An initiative of the Wisconsin Council on Children and Families, December 2010

Preserving Wisconsin’s Earned Income Tax Credit (Rebuttal Letter to Legislators), Anne Arnesen, Wisconsin Budget Project, May 2001

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: All homeowners and renters with income below $24,500 are eligible as long as they live on a property that was subject to property tax.

Formula: Households with income below $8,000 may claim a credit worth 80 percent of their property tax liability. For households with income between $8,000 and $24,500, the credit is calculated as 80 percent of the amount by which property taxes exceed 8.788 percent of household income above $8,000. There is also a $250 income deduction for each dependent in the household.

Renters calculate their property tax bill as 25 percent of their annual rent (20 percent if heat is included).

Benefits are reduced by 1/12th for every month on public assistance.

Notes/News: Wisconsin relies on property taxes for a greater share of revenues than most states.2

For the first time, the state’s 2009-2011 biennial budget indexed the Homestead Tax Credit for inflation, as the formula for calculating this credit was the only major portion of the tax code that did not account for the effects of inflation.

On March 1, 2011, Governor Scott Walker introduced his 2011-2013 biennial budget, which called for reducing the Homestead Tax Credit by freezing it at its current level and ending the practice of indexing it to inflation. This cut would raise taxes on more than 247,000 homeowners and renters with a household income of less than $24,680. While Walker’s plan did include new limits on property tax increases, a cap would only control how rapidly property taxes rise, and do nothing to lower property taxes for low-income families.

Following the governor’s proposal, the legislature passed a budget bill that repealed the indexing requirement for the Homestead Credit, which was signed into law on June 26. The change will raise taxes for low-income families by $13.6 million over the next two years. While the cuts will average about $12 per recipient in TY 2011 and $42 the following year, the real value of the credit and the total amount of credits will decline steadily in the years ahead, as inflation erodes the value of the credit.

In May, 2012, Wisconsin  learned that revenue estimates were up, and advocates are calling for using some of the new revenues to restore the tax credits that were reduced in 2011.

Reports/Materials: Property Taxes for Low-Income People Will Continue to Rise Unless Legislature Takes Action, Wisconsin Budget Project, April 2013

Wisconsin 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 Increases for Working Families: What’s at Stake for Wisconsin in the Fiscal Cliff, Tamarine Cornelius, Wisconsin Budget Project, December 2012

A Hidden Property Tax Hike for Seniors, Wisconsin Budget Project, February 2012

Effects of the Biennial Budget and Budget Repair Bills for Working Families, Wisconsin Council on Children and Families, June 2011

The Erosion of the Homestead Tax Credit, Wisconsin Budget Project, May 2011

Ending the Erosion of the Homestead Tax Credit, Wisconsin Council on Children and Families, 2009

 

1 Wisconsin Earned Income Tax Credit: Summary for 2008, Wisconsin Department of Revenue Division of Research and Policy, March 23, 2010

2 Revenue Sources Compare to Other States, Wisconsin Council on Children and Families