California’s state Earned Income Tax Credit — the CalEITC — represents one of the most significant recent state policy advances to improve economic security for low-income working families and single adults and address California’s high rate of poverty. Since the CalEITC was introduced in 2015, it has provided important support for hundreds of thousands of California workers with low earnings each year, helping them better afford the cost of meeting their families’ basic needs. Children of color and women have been particularly likely to be eligible to benefit from the CalEITC.
However, there are some important groups of low-income California workers that are currently excluded from receiving the CalEITC. Extending eligibility for the credit to these excluded workers could make the CalEITC more inclusive and increase its impact, enhancing economic security for more working families and individuals in California who struggle to make ends meet. A bill currently under consideration in the state legislature — Assembly Bill 2066 (Stone and Reyes) — would extend eligibility for the CalEITC to three groups of workers that the credit currently does not reach: young adults ages 18 to 24, seniors age 65 or older, and immigrant workers filing taxes without a Social Security Number. This analysis* examines who would benefit if the CalEITC were expanded to these three categories of workers.
Young Adult Workers Without Dependents
Workers of any age who have dependent children are eligible for the CalEITC. However, eligibility for workers who do not have child dependents is limited to individuals ages 25 to 64, following the eligibility rules for the federal EITC. As a result, the CalEITC currently excludes low-income working young adults under age 25 who are not being supported financially by their families. This group includes many former foster youth, first-generation college students from low-income families, and young adults entering the workforce with a high school or community college degree. These young workers are likely to be employed in low-wage, entry-level jobs, making it challenging for them to cover their basic necessities given rising rents and the high cost of living in many parts of California.
AB 2066 would lower the minimum age for the CalEITC for workers without dependents to age 18, extending access to the credit to working young adults ages 18 to 24 with annual earnings below the CalEITC income cutoff (about $15,000 for tax year 2017). Because the CalEITC (and federal EITC) cannot be claimed by individuals who can be claimed as dependents on someone else’s tax return, college students from higher-income families and other young adults who are being supported by their families would remain ineligible for the credit.
According to Budget Center estimates, individuals becoming newly eligible to claim the CalEITC under this provision would have an average age of 22 and would be about evenly split between young men and young women, working in occupations such as retail sales, food preparation and service, office administration, transportation, and personal care services. An estimated 38% would be attending school as well as working, and nearly two-thirds would be people of color (see chart).
Older Adults Working Beyond the Traditional Retirement Age
Low-income working adults age 65 and older are another group that is generally excluded from the CalEITC because most do not have child dependents, and the CalEITC currently does not allow tax filers without dependent children to claim the credit if the filer is older than 64 (again following the age criteria for the federal EITC). This exclusion leaves out seniors who must continue working into their late 60s, their 70s, or beyond because they do not have adequate retirement income or savings to stop working at the traditional retirement age of 65. Adults age 65 and older are the fastest growing age group in California, and many struggle to get by late in life, with women, people of color, and immigrants particularly likely to face poverty at older ages. Among older adults who are eligible for Social Security benefits, the age at which retirees are eligible to claim full benefits is currently 66 — above the CalEITC age limit for tax filers without children — and will increase to age 67 by 2027. Lack of adequate savings is a serious problem among Americans nearing retirement age, with about half of households age 55 and older having no savings specifically set aside for retirement.
AB 2066 would remove the upper age limit for CalEITC eligibility for workers without dependent children, allowing seniors with low annual earnings (below about $15,000 in tax year 2017) who are working beyond age 64 to claim the credit. According to Budget Center estimates, more than 80% of the older adults who would become newly eligible to claim the credit would be single, while about 18% would be married. Nearly two-thirds of these newly eligible tax filers would be older women (see chart).
Workers Who File Taxes With an ITIN
A third group of California workers who are currently excluded from the CalEITC consists of individuals who file taxes using an IRS-issued Individual Taxpayer Identification Number (ITIN). ITINs are available to tax filers who are not eligible for a Social Security Number (typically immigrants to the US without legal work status) and are used to file federal and state income taxes, to open bank accounts, and in other situations that require an official government identification number. Working Californians who file their taxes using an ITIN are currently excluded from the CalEITC because the CalEITC follows the structure of the federal EITC in requiring a Social Security Number that is valid for work for both the tax filer and all children claimed as dependents. This requirement excludes many working immigrants in California from benefiting from the CalEITC as well as many US-born children who have immigrant parents.
Immigrants in California are much more likely to experience poverty than non-immigrants, so working immigrants and their children could particularly benefit from more inclusive eligibility for the CalEITC as proposed by AB 2066. More than 1 in 4 immigrants in California lived in poverty in 2015, compared to about 17% of US-born Californians, according to data from the California Poverty Measure (which accounts for the impact of tax credits and the local cost of living). Recent changes to federal tax law will increase economic hardship for many immigrant families who file taxes, because children who have ITINs instead of Social Security Numbers will no longer be allowed to be claimed for the federal Child Tax Credit. Extending eligibility for the CalEITC to these families would help mitigate the negative effects of this federal tax change on low-income immigrant families in California.
Under AB 2066, tax filers would be allowed to use an ITIN or a Social Security Number for themselves or their children to claim the CalEITC. Workers who have Social Security Numbers that are no longer valid for work, such as individuals who lose immigration relief due to federal action targeting immigrants who previously qualified for Deferred Action for Childhood Arrivals (DACA) or Temporary Protected Status (TPS), could also use their previously issued Social Security Numbers when claiming the CalEITC. Budget Center estimates show that tax filers becoming eligible to claim the CalEITC under this ITIN provision would particularly include workers in occupations such as building and grounds maintenance, food preparation and service, farm labor, construction, production (manufacturing, e.g.), and personal care services. Nearly three-quarters of these newly eligible workers would live in households that include children (see chart).
Making the CalEITC More Inclusive Would Help More Californians Who Struggle to Make Ends Meet
The CalEITC is an important tool for addressing poverty and economic insecurity among working families and individuals in California, but it doesn’t currently reach all low-income workers. Making the CalEITC more inclusive by extending eligibility to working young adults, older adults, and ITIN filers could significantly expand the impact of the credit, enabling many more low-income individuals and families to benefit from the well-documented positive outcomes linked to EITCs — and helping to ensure that all working Californians and their families have access to the resources they need to meet their basic needs.
— Sara Kimberlin
* This analysis uses an income tax simulation model developed for the California Poverty Measure, a joint project of the Stanford Center on Poverty & Inequality and the Public Policy Institute of California.
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These estimates are based on US Census Bureau, American Community Survey (ACS) microdata (from the Integrated Public Use Microdata Series produced by the University of Minnesota) for California for 2015. The estimates were developed by first constructing tax units and calculating federal income taxes in the ACS data using an income tax simulation program developed for the California Poverty Measure, a collaborative project of the Stanford Center on Poverty & Inequality and Public Policy Institute of California. This income tax simulation program uses self-reported information about family relationships and income in the ACS, which is assembled and then processed through the Taxsim tax calculator developed by the National Bureau of Economic Research. The tax units and federal adjusted gross income produced through the tax simulation program are then combined with additional ACS data related to wage earnings and work participation to identify individuals likely eligible to file tax returns to claim the CalEITC and to calculate their estimated CalEITC credit amounts for the baseline CalEITC data. Tax unit data are also used to identify filers who would become eligible for the CalEITC under proposals to extend credit eligibility to new groups of filers and to calculate the credit amounts for which they would become eligible. The family members of these tax filers are then also identified, in order to analyze demographic characteristics of all people likely to benefit from the CalEITC.
These estimates have certain limitations. The ACS is a useful data source for examining CalEITC eligibility because it has a large sample that is representative of the full population of California (including individuals who do not file income taxes), and it includes relatively detailed income and family and demographic information, including information not available in administrative tax data. However, some information that is relevant to CalEITC eligibility is not directly reported in ACS data. For one, tax units and immigrant legal status of tax filers are not reported in ACS data, so these are imputed in the California Poverty Measure income tax data. The estimation and imputation strategies used in this analysis are necessary to deal with information that is not directly reported in the ACS and to examine characteristics of individuals who are likely eligible for the CalEITC though they may not file taxes to claim the credit. As a result, however, these estimates have a level of uncertainty and should be interpreted accordingly.
For further information about these analytical methods, contact Sara Kimberlin, Senior Policy Analyst, California Budget & Policy Center, at email@example.com.