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Governor Signs Budget to Expand the Credit to Include Workers with Self Employment Income and Families with Incomes up to $22,300
For Immediate Release
Yesterday, Governor Jerry Brown signed a budget that significantly expands the California Earned Income Tax Credit (CalEITC), a refundable state tax credit that increases the economic security of low-income working families. Effective for the 2017 tax year, low-income workers with self-employment income and working families with incomes up to about $22,300 will be able to benefit from the credit. Initial estimates from the Institute of Taxation and Economic Policy indicate that more than one million additional families could benefit under the expansion.
“Expanding the California Earned Income Tax Credit is a critical step toward ending child poverty in California by allowing more working poor families to keep more of what they earn. Not only is the EITC an effective anti-poverty program, but research shows that the credit also improves child and maternal health and promotes educational success,” said Michele Stillwell-Parvensky, Senior Policy and Government Affairs Manager at Children’s Defense Fund-California. “We appreciate the Governor and the California Legislature for making working families a priority, and look forward to working with them to advance towards a future where no California child lives in poverty.”
The CalEITC, created in 2015, builds upon the success of federal Earned Income Tax Credit created over 40 years ago, which is the largest federal anti-poverty program. In 2015 alone, the federal EITC, along with the Child Tax Credit, lifted 9.8 million people including 5.1 million children out of poverty, and made millions more Americans less poor. California families with children can receive as much as $2,700 from the CalEITC, in addition to the income boost they receive from the federal EITC.
The budget will significantly increase the income eligibility threshold for the CalEITC. Families with any number of dependent children that have an annual income of less than about $22,300 will be eligible for the credit – which will enable a family with a full-time, minimum wage job to benefit. Previously, the credit was only available to families with annual earnings below $10,078 for a family with one child or $14,161 for a family with two or more children. The annual income eligibility threshold for adults without qualifying children will increase from $6,717 to about $15,000.
“Expanding to include the self-employed is big and brings the California EITC into alignment with the federal and other state EITCs. California is driving the self-employed or ‘gig’ economy. It’s time we started rewarding the self-employed with the same benefits the rest of the workforce gets,” said Judy Darnell, Vice President of Public Policy at United Ways of California. “If you’re an Uber or a Lyft driver or other independent contractor and your family makes less than $22,300 per year, getting a tax credit is like getting a bonus. It’s going to make a huge difference for a lot of people.”
The CalEITC expansion will be in effect when families file their taxes next year for the 2017 tax year. And that is key – many eligible families are not required to file taxes, but must in order to claim the credits they are owed. Organizations serving low-income families underscored the need to focus on outreach to make sure eligible families know about the CalEITC and have access to free tax-preparation services to claim their credit. A survey conducted by the California Budget and Policy Center found that fewer than 1 in 5 people who were likely eligible for the CalEITC had even heard of the credit, highlighting the need for CalEITC promotion. The 2017-18 state budget included $2 million in funding grants to nonprofit organizations for outreach and awareness activities on the CalEITC, but advocates suggest that additional resources will be necessary to meet the needs, in particular expanding free tax preparation services to ensure that low-income families are getting the most money in their pockets during tax time.
“Statewide, United Ways support over 600 VITA sites providing free income tax assistance from trained volunteers, to help families save money and access the credits. United Way Bay Area leads the Earn It! Keep It! Save It! coalition that includes over 250 free tax sites serving 8 counties in the Bay Area. Our mission is to help Bay Area residents become more financially stable by providing free tax prep services and helping them claim important credits like the Child Tax Credit, the federal EITC and CalEITC. The recent extension of the CalEITC will help many of the more than 70,000 low-income individuals we serve and help in our mission in reducing poverty in the Bay Area” says Anne Wilson, CEO of United Way Bay Area. A broad coalition of organizations across the state came together in support of expanding the CalEITC to helping working families including advocates for education, health, economic security, and racial justice, unions, small business groups, food banks, and pediatricians. Assembly Budget Chair Phil Ting was a key champion for expanding the CalEITC, and the issue garnered support from a number of other state legislators from both political parties. Advocates are committed to continuing to work with the Governor and the Legislature to strengthen and expand the reach of the CalEITC in future years.
“CWDA commends the Governor and the Legislature for its significant expansion of the state EITC — one of the most effective anti-poverty strategies ever employed. Not only is poverty debilitating to children and families, it is a significant drain on the state economy. The expansion of the EITC included in the budget is an important step in our state’s fight to eliminate poverty.” – Frank Mecca, Executive Director, County Welfare Directors Association of California.
“The expansion of CalEITC represents a significant step toward creating a more equitable California, one in which all Californians, no matter race, gender, or socioeconomic status, can thrive and reach their full potential.” – Lewis Brown, Senior Associate, PolicyLink
“Alameda County Community Food Bank serves over 300,000 Alameda County residents annually, most of whom have a working member in their household. The CalEITC expansion will help thousands more people in our community to put food on the table and lift more people out of poverty.” – Stephen Knight, Director of Policy and Partnerships, Alameda County Community Food Bank
“Nearly 80% of low-income Californians live in a home with earnings. The 2017-18 Budget Act’s expansion of EITC will give their families some relief from the daily grind of working poverty.” –Mike Herald, Director of Advocacy, Western Center on Law and Poverty.
“Many low-income families struggle for self-sufficiency and must rely on food banks to put meals on the table. The expanded tax credit will help more families rise out of poverty, a key step toward ending hunger in California.” – Andrew Cheyne, Director of Government Affairs, California Association of Food Banks
“Expanding CalEITC to self-employed workers and raising the income threshold will help millions more Californians build the resources necessary to exit poverty. Our Coalition is committed to helping get the word out about the new law so that everyone who earned the credit keeps the credit and more low-income families have access to the financial tools they need to achieve the California Dream.” – Jessica Bartholow, Chairperson, California Asset Building Coalition
“California leads the nation with the number of self-employed workers in our state, so expanding the CalEITC to include them means more Californians will now have access to this important tax credit and the significant financial boost it provides.” – Paulina Gonzalez, Executive Director, California Reinvestment Coalition
“Small business is always looking for ways to increase the income of their employees especially those with lower incomes. The federal Earned Income Tax Credit has shown itself to be incredibly successful in lifting income for low-income families and we are especially pleased to see the inclusion of self-employed workers in the California EITC. We applaud the governor for signing a budget that includes EITC expansion and strongly support robust outreach to make sure eligible people are aware of this valuable program which will help them cover their basic living expenses.” – Scott Hauge, President, Small Business California
“Budgets are more than fiscal plans, they reflect our values as a state. And in California this value should be true: if you work hard, you live with financial security. Yet the reality is that most hard working Californians still struggle – they can’t weather a $700 surprise expense, they are a broken wrist away from financial crisis. This budget demonstrates a renewed commitment to make life better for millions of working families by expanding the California Earned Income Tax Credit – a proven way to lift working people – and their children - out of poverty. Thank you to the Governor and the Legislature for forging a brighter future for millions of children by championing the CalEITC.” Joseph Sanberg, Chair, CalEITC4me.
“With the expansion of the EITC, California is taking another key step towards building the financial security of California women, our families and our communities. Thank you to everyone who made it happen!” – Heather McCulloch, Founder and Principal, Asset Building Strategies
“Expanding the California Earned Income Tax credit to include self-employment earnings will reward the work done by entrepreneurs and independent contractors, and allow them to keep more of their hard earned money.” – Mark Herbert, California Director, Small Business Majority
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