Interactive

How Much Will Working Families and Individuals Benefit From California’s New EITC?

Established by state lawmakers this past June, California’s Earned Income Tax Credit (EITC) provides a refundable credit to working families and individuals with very low earnings, beginning in tax year 2015. The state EITC, which is modeled on the federal credit of the same name, has three key features:

  • The size of the state credit for a particular family or individual depends on how much they earn and how many children they support as well as their personal income tax filing status.
  • Tax filers receive larger state credits for higher levels of earnings up to a certain maximum level, after which the state credit phases out.
  • If the state credit exceeds the amount of state personal income taxes owed, tax filers receive the balance as a refund.

For more information on California’s state EITC, see this section from the Budget Center’s analysis of the 2015-16 state budget.

This interactive tool shows how much families and individuals can expect to receive from both the state and federal credits based on their tax filing status, the number of children they support, and their annual earnings from work.

 

Click here to see additional information about the state and federal EITCs and assumptions underlying this interactive tool.

The federal Earned Income Tax Credit (EITC) is determined based on a family’s or individual’s annual wages, salaries, tips, and other employee compensation included as part of gross income for tax purposes, in addition to net earnings from self-employment. The state EITC calculation excludes net earnings from self-employment and is determined based on wages, salaries, tips, and other employee compensation included as part of gross income for tax purposes, but only if they are subject to wage withholding. For the sake of simplicity, this interactive tool assumes that all earnings are subject to wage withholding. As a result, the state and federal credits are each determined based on the same amount of annual earnings.

California’s state EITC “phases in” (increases) for higher levels of earnings from work up to a certain maximum level of earnings, after which the size of the credit “phases out” (decreases) to the extent that earnings continue to rise. For tax year 2015, the state EITC equals 85 percent of the federal EITC for families and individuals with earnings in the “phase-in” range of the credit, where a higher level of earnings results in a larger credit. This percentage – referred to as the “adjustment factor” – must be specified in the state budget bill each year or no state credit will be provided. In contrast, the rates at which the state EITC phases out do not have to be set each year. For more information on the state credit, see this page.

The state and federal EITC amounts shown in this interactive tool are estimates and may not match the credits that families and individuals actually receive. This tool estimates the state and federal credits separately based on the exact amount of a family’s or individual’s annual earnings. In contrast, the Internal Revenue Service (IRS) and Franchise Tax Board (FTB) calculate the federal and state EITCs based on the midpoint of $50 increments of earnings rather than on exact earnings. For example, a family with $5,046 in earnings falls within the $5,000 to $5,050 earnings range, and the IRS and FTB determine this family’s EITC based on earnings of 5,025 – the midpoint of this range – rather than on the family’s exact earnings of $5,046.

The number of children specified in this interactive tool pertains to “qualifying children,” who must meet certain age, relationship, residency, and other requirements, which are described here.

Tax filers who have no qualifying children must be between ages 25 and 65 at the end of the tax year in order to qualify for the state and federal EITCs. For more information, see this page.

“Married” refers to tax filers who file joint returns, while “single or head of household” refers to those who file as single, head of household, or qualifying widower. Tax filers whose filing status is “married, filing separately” are not eligible to claim the state or federal EITCs.

Tax filers, spouses, and qualifying children must have Social Security numbers that are valid for employment in order to qualify for the state and federal EITCs.

The state and federal EITCs displayed by this interactive tool are rounded to the nearest dollar and may not sum to the total displayed due to rounding.

For additional information about who qualifies for the federal EITC, see this page.