California has joined the list of 25 other U.S. states with a state Earned Income Tax Credit (EITC), which will supplement the federal EITC beginning in tax year 2015. The California EITC is a refundable credit, which means that qualifying, low-income households will receive a refund if the amount of the credit is greater than the amount of tax they owe.
The credit is available to California households with adjusted gross incomes of less than $6,580 if there are no qualifying children, less than $9,880 if there is one qualifying child, or less than $13,870 if there are two or more qualifying children.The California EITC requires earned income reported on a W-2 form, such as wages, salaries, and tips, which must be subject to California withholding. Unlike the federal EITC, income from self-employment cannot be used to qualify for the California credit. The estimated average household benefit is $460 per year with a maximum credit of more than $2,600 for a family with three or more qualifying children.
There are three key features of the state EITC:
- 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.
Check out an interactive tool from the California Budget and Policy Center, which 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.
If you would like to learn more about the new California EITC, you can discover additional resources and facts by visiting the following websites: