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  1. Continuing Our Efforts for Tax Credits and Economic Stability for Families

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    Virginia reached an important policy milestone this year — the General Assembly approved a state refund for a portion of the Earned Income Tax Credit (EITC) available to low-income working families. For the 2023 tax filings, families who qualify for the EITC will receive the refund on their federal taxes. At the state level, Virginia will give an additional refund equal to 15% of the federal refund.

    Tax refunds help families experiencing material hardship or poverty meet many of their basic needs and can be used as needed to pay off debts, pay rent or put food on the table. These refunds are especially impactful during times of inflation and when COVID response policies are starting to come to an end.

    Later this summer or early this fall families will also receive a one-time tax relief payment due to larger than expected revenue surpluses in the state budget. People with taxable income will receive a refund, but those who earn too little to owe taxes will not. And unlike the EITC, family size will not be factored into the payment—only marital status. These one-time refund plans fail to consider the additional expenses of feeding a larger family or child care needs for families with young children.

    What Could Be Next for Families?

    While this year marks an important step to provide more families with tax relief, it is helpful to take a step back and see where other states have built policies to support families. As most other states have wrapped up their legislative activity for the year, we can share how other states have designed tax refund policies that specifically support children and families.

    Recently ten states* have introduced legislation to create state-level child tax credits. Vermont is the most recent state to approve a child tax credit for families with children under five earning less than $125,000 per year. Vermont now joins the nine other states who have a child tax credit already in place for families (CaliforniaColorado, Idaho, Maine, MarylandMassachusettsNew Mexico, New York and Oklahoma).

    These states have provided a model that Virginia should consider. These are states who are governed by both Republicans and Democrats, but they have united behind state refunds to support families. Targeting refunds, in conjunction with the refundable EITC, impacts families’ economic security and lowers their level of hardship. Economic hardship is a main reason that children and parents experience trauma, depression, emotional distress. These negative outcomes mean economic hardship also puts children at risk of entering foster care. Additional state refunds can reduce these negative outcomes. Research on the federal child tax credit found that families used the additional funds to meet basic needs for food, utilities and clothing.

    By targeting tax credits to low-income families, these refunds can also reduce inequity. Black and Brown families make up the lowest income families in Virginia and experience disproportionate economic hardship. Choices to expand the EITC and to target Child Tax Credit can provide more financial resources to the families who have often been left behind.

    In the coming months, we anticipate waves of financial uncertainty for families dealing with higher gas prices, increasing rents, and universal free school meals coming to an end. If lawmakers provide additional savings and stability to communities facing uncertainty, our families would feel better about providing for their families and their children would feel more secure.

    We all want Virginia to be the best place to raise children and provide opportunities for them to grow up, but our tax policy is not in line with that belief. It’s time to join the other states in prioritizing children and families and offer targeted tax relief to families.

    *Connecticut, Hawaii, Illinois, Iowa, Kansas, Michigan, Missouri, Oregon, Vermont and West Virginia

  2. How Virginia Families Can Benefit from Proposed Tax Credits

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    Parents have faced numerous challenges due to the COVID-19 pandemic. Child care closures made it more difficult to work. Employment uncertainty and illness made it more difficult to plan ahead. And inflation has impacted day-to-day expenses, where lower income families feel an even greater impact. These material hardships also put an emotional toll on families. Parents have repeatedly reported higher than typical levels of stress and anxiety during the pandemic. Being a parent on a normal day is not an easy job, let alone living through two years of the pandemic.

    In this time of unprecedented tax revenue surplus in Virginia, more than $13 billion over three years, it is time to deliver relief and put money back in the pockets of parents. With multiple tax credit and tax deduction options under consideration, state lawmakers should prioritize ones that benefit low-income families.

    On February 24, 2022, Voices held a press conference, along with Families Forward Virginia and The Commonwealth Institute, to demonstrate how parents could benefit from these tax policy choices and why they need relief. Crystal, a mom living in Franklin, VA asked legislators to act on these tax choices, “I’ve climbed out of the depths of hell to get where I am today…families like mine who are having to decide whether to pay bills or put food on the table.”

    View more of the stories as well as testimony from Delegate Marcia “Cia” Price and Delegate Candi Mundon King here.

    Current Tax Policy Options Considered by the Virginia General Assembly

    1. Partially Refundable EITC

    The partially refundable Earned Income Tax Credit (EITC) would benefit approximately 600,000 tax filers in Virginia. This credit is targeted to the lowest income tax filers, most with incomes below $75,000 a year, and the majority are working families with children.

    This option would send a refund check to families in 2023 for the portion of their tax refund that is less than what they owe in state taxes. Currently, tax filers only receive a refund for the federal portion of their taxes. Families could receive an additional $500 refund in the future depending on their income and family size. Learn if your family might be eligible using this EITC calculator from The Commonwealth Institute.

    This option would cost approximately $200 million per year to provide annual tax refunds to lower income working families. The Senate has accepted this proposal, but the House budget includes a different proposal that doubles the standard deduction and reduces available revenues by approximately $600 million per year.

    1. One Time Taxpayer Relief Payment -> “Parent Tax Relief”

    Another option would come from the one-time surplus of revenue in Virginia—a taxpayer relief payment to all tax filers that would arrive sometime between July and November 2021. The General Assembly has created one-time relief payments with one-time surpluses in the past, most recently in 2019. This proposal was included in Governor Northam’s outgoing budget as a relief payment of $250 for single filers and $500 for joint filers. With higher projected tax revenues, Governor Youngkin has proposed increasing the payments to $300/$600. Both the House and the Senate are planning to provide the one-time relief payments, but the Senate budget does not include a specific dollar amount or plan at this time.

    We think it’s time to revisit this proposal to provide more tax relief to families. The current proposal treats tax filers of all income levels the same and does not assume that families with children have higher expenses. Lawmakers have noted that higher income taxpayers do not need the tax relief as much as lower income families, but have not revamped with proposal. With a total estimated cost of $1.2 billion in one-time revenues, we think there is room to make adjustments in this proposal by including an income cap and adjusting payments based on the number of dependents on a family’s state tax return.

    Adjustments to the one-time relief payment could provide a family $1,200 in relief funding compared to $600 as a married filer or $300 as a single filer. One in four taxpayers in Virginia has children in their household. Adjustments to incorporate family size could cost approximately $600 million out of the $1.2 billion. Including an income cap could ensure that taxpayers without children also receive the one-time payment.

    Including children in this calculation recognizes that families have higher costs to put food on the table and cover housing. It also recognizes that economic stability has a positive effect on children, including the very youngest children, especially on their healthy growth and development. Lawmakers should factor in families when considering the one-time relief options.

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  3. Tax Credits Provide Essential Financial Relief to Working Families: Tell Lawmakers to Act

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    The Commonwealth Institute for Fiscal Analysis joins Voices for Virginia’s Children as a guest-contributor for this analysis of Virginia’s tax policy; edited for the Voices’ blog.

    While most parents dread filing taxes each year this chore can connect working families to federal relief in the form of a tax refund or rebate. That refund check often brings smiles and financial relief to homes. When sifting through tax-filing sites or accounting services, working families may notice they qualify for a tax credit for disclosing expenses for child care, health care, or education. In many cases, the credit reduces the overall tax burden and can be returned as a refundable credit or rebate: a check from the US Treasury or State Treasury or a direct deposit to your account.

    The Virginia and federal tax systems have different rules about qualifying credits and deductions. This year, the federal tax program for families will include the second half (six months’ worth) of the Child Tax Credit payments. You may have received a letter stating what benefits you already received and will be eligible to receive when filing your taxes for 2021. While prolonged debate on the Build Back Better Act has halted the flow of monthly payments, families will receive the remainder of the Child Tax Credit payments when they file taxes this spring.

    But for now, the monthly, expanded child tax credit payments have ended. We hope Congress will unite to revive Child Tax Credit payments in the coming months.

    In the meantime, there are two issues the Virginia legislature is considering:

    Conformity to Federal Tax Laws for 2021 Would Benefit Young Adults

    In Virginia, emergency legislation from Senator Janet Howell (SB94) and Delegate Kathy Byron (HB1003) would align the state’s rules to federal rules.  Adopting the new federal rules for the Earned Income Tax Credit (EITC), among other improvements,  would entitle Virginia families and young adults with up to 20% of the federal credit.

    For young adults without children, the Federal maximum benefit for “childless tax filers” has increased to $1502. At a state level, young adults would be entitled to up to $300 credit on their state income tax. However, for 2021, the state credit is not refundable, so conforming to the federal EITC would reduce state tax burdens but would not provide a state rebate. Meaning, that young adults and former foster youth could owe fewer taxes this year.

    Adopting the Earned Income Tax Credit would offer state tax credits to the following young adults:

    • 19 and older: if working enough to earn taxable income;
    • 24 and older: if  pursuing education for at least five months of the year;
    • 18 and older: if they were in foster care any time after they turned 14 or were homeless in any taxable year

    Refundable State Tax Credits in 2022 and Beyond

    Another issue the legislature will consider this year is whether to make our state Earned Income Tax Credit (EITC) partially refundable so that it can be returned to families with their state tax rebate. Approximately 72% of all tax filers who benefit from the EITC have children, so creating a refundable portion would impact over one in three children in Virginia.

    In his outgoing budget proposal, Governor Northam proposed to make the state’s Earned Income Tax Credit (EITC) partially refundable for working families with low and moderate incomes. Voices is a member of the Virginians for Tax Fairness Coalition led by The Commonwealth Institute and New Virginia majority. As a member of that coalition, we support two bills under consideration in the Virginia House and Senate for a refundable EITC: Senator Barker’s SB343, Senator McPike’s SB515; Delegate Price’s HB1312.

    A partially refundable credit would better center the needs of low-income families and families of color in our state budget. And if Congress makes any federal changes and advances the Build Back Better Act, young adults could look forward to refundable credits among other support.

    Read more about how state lawmakers’ tax policy choice could impact families and state revenues from The Commonwealth Institute.