It’s tax time again, and if you are one of the more than 300,000 Oklahoma households that claim the state Earned Income Tax Credit (EITC) you may have noticed that your tax refund is lower than it was last year, even if there was no change in your income. That’s because the Oklahoma Legislature slashed the state EITC to help close last year’s budget hole. The state EITC is no longer refundable in Oklahoma, so most people who qualify for the credit will no longer get the full benefit.
What is the Earned Income Tax Credit?
The EITC is a tax credit that encourages work by supplementing income from lower wage jobs. You must have earned income to claim the credit, and the amount of the credit depends on a family’s earnings and number of children. In 2017, a family with one adult working full-time at minimum wage and 2 children can claim an earned income credit of $5,572 on their federal tax return and a credit of $278.60 (5 percent of the federal amount) on their Oklahoma tax return. The state EITC was adopted in Oklahoma in 2000 with strong bipartisan support. People all across the state in every legislative district benefit from it.
Who Benefits from the EITC?
The EITC benefits the working poor. To claim the maximum credit, a single person with children must make less than $18,200 and a couple with children must have income below $23,700. Individuals or couples with income above these thresholds cannot claim the EITC – neither can individuals or couples with no earned income. You must work to claim this credit.
Families that claim the EITC pay most of their taxes through sales taxes and payroll taxes. Since they have low incomes, the EITC is often worth more than they owe in income taxes, so they often receive refunds. Families use that money to pay for basic needs that cannot be easily covered with their monthly income (like home or car repairs), to pay down debt, or to save. The EITC and the tax refund it generates are a critical part of the yearly financial plan for families that receive it.
How did the EITC change in Oklahoma last year?
The EITC is still available in Oklahoma, but it’s no longer refundable. This means that if the credit is larger than the amount an individual owes in income taxes, the difference will no longer be refunded to them. This change impacted more than 200,000 low-income families across the state this year, with an average loss of $91 per family. However, some families will see a much bigger loss. A single parent working full-time at minimum wage with two children lost $279 this year because of this change. A married couple with two children and an income of $20,000 lost $260. These working families saw little to zero benefit from the income tax cuts (those benefited high-income families much more) and cannot afford this loss.
The bottom line
Taking money from Oklahoma families at the bottom of the income ladder is not the right way to address our budget crisis. We should be expanding programs that reward work – not limiting their benefit. Though three different bills were introduced this session that would have restored the EITC’s refundability in Oklahoma (HB 1311, HB 1474, and SB 434), none were given consideration by the Oklahoma Legislature. Making the EITC non-refundable was a mistake, and now those who will pay for it are the least able to afford it.