Order Code RS22316 November 4, 2005 CRS Report for Congress Received through the CRS Web The Earned Income Tax Credit (EITC): Percentage of Total Tax Returns and Credit Amount By State Christine Scott Specialist in Tax Economics Domestic Social Policy Division Summary The earned income tax credit (EITC), established in the tax code in 1975, provides cash assistance to lower income working parents and individuals through the tax system. In tax year 2003, total EITC (EITC applied against tax liability and refunded EITC) was $39.2 billion, with 22.1 million tax returns claiming the EITC. Geographically, the four largest states in terms of population — California, Texas, Florida, and New York — had 35.1% of all federal tax returns claiming an EITC and 35.9% of the total EITC amount. States with a higher percentage of federal tax returns claiming the EITC were located in the South, with Mississippi (31.87%) and Louisiana (28.45%) having the highest percentage of federal tax returns claiming the EITC. This report will be updated when new data become available. The Earned Income Tax Credit (EITC)1 The earned income tax credit (EITC) is a refundable tax credit available to eligible workers earning relatively low wages. Under current law, two categories of EITC recipients exist: childless adults and families with children. Because the credit is refundable, an EITC recipient need not owe taxes to receive the benefits. Eligibility for, and the size of, the EITC is based on income, age (25 or older but less than 65 years of age), residence (U.S. resident unless military stationed overseas), and the presence of qualifying children. The distribution of federal tax returns claiming the EITC by state can be shown in two simple ways. First, the largest four states in terms of population — California, Texas, Florida, and New York — had the largest number of federal tax returns and EITC amount, accounting for 35.1% of all federal tax returns claiming the EITC and 35.9% of the total EITC amount in tax year 2003. Alternatively, the distribution can be shown using the 1 A more detailed description of EITC eligibility and the calculation of the credit are in CRS Report RL31768, The Earned Income Tax Credit (EITC): An Overview, by Christine Scott. Congressional Research Service ˜ The Library of Congress CRS-2 percentage of federal total tax returns filed from a state claiming the EITC. In tax year 2003, for the United States (the sum of all states and the District of Columbia, not including outlying areas), 17.01% of tax returns claimed an EITC, with an average EITC of $1,772.48. The Percentage of Tax Returns Claiming the EITC The percentage of federal tax returns filed from a state claiming the EITC is an indicator of the dependence of state residents on the EITC. It can also be viewed as an indicator of the relative income of states. States with a higher proportion of lower income working residents (particularly those with children) will have a higher percentage of federal tax returns filed from the state claiming the EITC. For tax year 2003, the District of Columbia and 19 states had a share of federal tax returns claiming the EITC that was greater than or equal to the U.S. average (for all states and the District of Columbia) of 17.01%. Thirty-two (32) states had a percentage of federal tax returns with an EITC that was lower than the U.S. average.2 The percentage of federal tax returns claiming an EITC ranged from a low of 9.78% in New Hampshire to a high of 31.87% in Mississippi. Map 1 shows a graphical presentation of the percentage of federal tax returns claiming the EITC by state. Table 1 provides data on the number of federal tax returns filed by state and the percentage of federal tax returns claiming an EITC by state in tax year 2003. The Average Amount of the EITC The amount of the EITC depends upon income and the number of qualifying children. For tax year 2003, the maximum EITC for individuals and married couples was $382 with no qualifying children, $2,547 with one qualified child, and $4,204 for two or more qualifying children. However, these maximum credit amounts are only for individuals and couples with incomes below the levels at which the credit begins to phase out. For tax year 2003, the income level at which the EITC began to phase out was $6,240 if the tax filer had no qualifying children and $13,730 if the tax filer had one or more qualifying children. For married tax filers filing a joint return, the income levels were $1,000 higher. Tax filers received no EITC in tax year 2003 if they had an adjusted gross income of more than $11,230 with no children, $29,670 ($30,670 if married), and $33,690 ($34,690 if married). Public IRS data show that tax returns with an adjusted gross income below $30,000 had a larger EITC ($1,832) than tax returns with an adjusted gross income of $30,000 or more ($443) in tax year 2003. Map 2 shows a graphical presentation of the average EITC amount by state. 2 All percentages and dollar amounts in this report were prepared by the Congressional Research Service using Internal Revenue Service’s Historical table 2 (Statistics of Income Bulletin) for all states and the United States, available at [http://www.irs.gov/pub/irs-soi/03in54cm.xls] and [http://www.irs.gov/pub/irs-soi/03in53us.xls]. EITC includes the EITC applied against tax liability and the excess (refunded) EITC. CRS-3 Map 1. Percentage of Tax Year 2003 Tax Return with an Earned Income Tax Credit by State Map 2. The Average Earned Income Tax Credit Amount by State for Tax Year 2003 Source: Maps computed by the Congressional Research Service from IRS, Historical Table 2 (Statistics of Income Bulletin), available at [http://www.irs.gov/taxstats/indtaxstats/article/0,,id=103106,00.html] CRS-4 Table 1. Total Number of Tax Returns, Percentage of Federal Tax Returns Claiming an Earned Income Tax Credit (EITC), and Average EITC by State, Tax Year 2003 Total — All States Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware District of Columbia Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Number of Federal Tax Returns 129,810,122 1,883,765 343,032 2,285,323 1,121,518 15,171,832 2,079,044 1,653,789 388,288 275,645 7,849,542 3,709,312 591,084 577,926 5,722,755 2,816,535 1,324,876 1,218,580 1,740,856 1,879,651 615,092 2,601,859 3,051,697 4,546,347 2,383,813 1,169,646 2,563,895 433,522 802,709 1,044,025 634,654 4,082,108 813,731 8,589,932 3,680,813 302,426 5,444,137 1,460,943 1,571,871 5,771,764 498,063 1,804,803 357,449 2,565,045 9,298,799 Percentage of Federal Tax Returns Claiming the EITC 17.01% 25.73 11.29 17.49 24.81 16.54 12.85 10.15 14.66 18.77 20.08 22.79 14.48 17.52 14.94 15.12 13.01 14.56 19.68 28.45 14.13 13.44 10.09 14.18 10.85 31.87 17.01 17.18 13.75 15.33 9.78 12.14 24.40 17.42 20.40 13.18 14.45 21.47 14.32 13.40 13.13 23.47 15.51 21.31 23.25 Average EITCa $1,772.48 2,023.52 1,494.50 1,776.14 1,899.58 1,745.90 1,593.07 1,564.88 1,703.60 1,681.55 1,781.61 1,944.01 1,552.74 1,694.88 1,754.98 1,686.71 1,571.09 1,664.30 1,718.03 2,085.93 1,556.39 1,676.38 1,521.31 1,708.15 1,534.55 2,084.70 1,720.42 1,624.16 1,641.20 1,653.64 1,498.11 1,691.43 1,795.38 1,738.15 1,829.85 1,584.97 1,708.71 1,809.32 1,601.93 1,622.54 1,645.88 1,864.24 1,627.85 1,806.61 1,967.75 CRS-5 Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming Number of Federal Tax Returns 969,812 302,209 3,431,766 2,808,556 744,440 2,589,845 240,998 Percentage of Federal Tax Returns Claiming the EITC 14.41 12.68 14.58 12.63 19.60 11.33 14.31 Average EITCa 1,701.32 1,470.87 1,712.23 1,614.43 1,666.90 1,585.01 1,593.23 Source: Table Prepared by the Congressional Research Service from Internal Revenue Service, Historical table 2 (Statistics of Income Bulletin), available at [http://www.irs.gov/pub/irs-soi/03in54cm.xls]. a. Earned income tax credit is total EITC and reflects both the portion applied against tax liability and any excess refunded to tax filers.