The California Earned Income Tax Credit (CalEITC) is a refundable state tax credit, modeled after the federal EITC, that boosts the incomes of low-earning workers and their families and helps them afford basic expenses. The CalEITC was established by the 2015-16 state budget package and was subsequently expanded as part of the 2017-18 budget deal. The CalEITC has these 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.
- 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.
California’s 2017-18 state budget agreement significantly expanded the CalEITC so that additional working families and individuals with low incomes can qualify for the credit beginning in tax year 2017 (the year for which tax filing began in January 2018). For more information about this expansion, see Expanded CalEITC Is a Major Advance for Hard-Working Families.
This updated interactive tool shows how much families and individuals can expect to receive from both the state and federal EITCs 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.
When graphed by earnings levels, the CalEITC generally looks like an isosceles triangle. That is, the credit “phases in” (increases) for higher levels of earnings up to a maximum point (a filer with one dependent child and annual earnings of $5,175 would receive a maximum credit of $1,495 in 2017), after which the credit “phases out” (decreases) for higher levels of earnings until it reaches $0. In contrast, the federal EITC looks like a trapezoid when graphed by earnings levels. The size of the federal credit phases in for higher levels of earnings up to a maximum point similar to the CalEITC, then it plateaus at that maximum credit for several thousands of dollars of additional earnings, after which it gradually phases out until it reaches $0.
Both the CalEITC and the federal EITC credit amounts are determined through a two-step process:
- First, the credit is calculated based on a family’s or individual’s “earned income.” If tax filers’ earned income is in the “phase-in” range of the CalEITC — where a higher level of earnings results in a larger credit — then the CalEITC is calculated based solely on earned income and they do not need to proceed to step two. (The same is true for calculating the federal EITC for tax filers whose earned income falls in the phase-in range of the federal EITC.) For the federal EITC, earned income is defined as annual wages, salaries, tips, and other employee compensation included as part of gross income for tax purposes plus net earnings from self-employment. The CalEITC is determined based on the same definition of earned income except that wages, salaries, tips, and other employee compensation count only if they are subject to wage withholding pursuant to state Unemployment Insurance code. (For the sake of simplicity, this interactive tool assumes that all wage earnings are subject to withholding.) Tax year 2017 is the first year in which net earnings from self-employment were included as part of earned income in determining the CalEITC. (For tax years 2015 and 2016, these earnings were not included.) For the purpose of this interactive, the state and federal EITCs are each assumed to be determined based on the same amount of annual earnings.
- Tax filers with earned income in the “phase-out” range of the CalEITC or the federal EITC — where a higher level of earnings results in a smaller credit — proceed to the second step in determining their credit size. In this step, the CalEITC and federal EITC are based on earned income only if 1) earned income differs from federal adjusted gross income (AGI) and 2) determining the credit based on earned income results in a smaller credit compared to basing it on federal AGI. If these conditions are not met, then the CalEITC and federal EITC are determined based on federal AGI. (This means that filers with additional income from sources other than earnings, such as taxable retirement income, may receive a smaller credit than they otherwise would have or no credit.) For simplicity, the state and federal credits displayed in this interactive are each determined assuming that earned income equals federal AGI.
California policymakers are required to specify in each year’s state budget bill how large a credit to provide through the CalEITC or else the credit is not available for the upcoming tax year. Specifically, policymakers must specify the CalEITC’s “adjustment factor,” which generally sets the state credit at a percentage of the federal EITC. For tax years 2015, 2016, and 2017, California set the adjustment factor at 85%. This means that for families and individuals with earnings in the “phase-in” range of the credit, the state EITC equals 85% of the federal EITC. For example, a parent with two qualifying children and annual earnings of $7,000 would qualify for a CalEITC of about $2,380 in tax year 2017 — 85% of their federal EITC ($2,800). For families and individuals with earnings in the “phase-out” range of the CalEITC, the adjustment factor is used to determine the size of the credit, but it does not result in a state EITC equal to 85% of the federal EITC. This is because as the CalEITC phases out, the federal EITC generally continues to phase in, which means that the state credit represents a declining percentage of the federal credit for higher levels of earnings.
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.
In order to qualify for the state and federal EITCs, tax filers who have no qualifying children must be 25 to 64 years old at the end of the tax year (or, if they do not meet this age requirement, they must have a spouse who does and they must file a joint tax return). 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.