Kentucky Earned Income Tax Credit
More Information
A provision establishing a state Earned Income tax Credit is part of the Kentucky Forward Plan that has been introduced by Rep. Jim Wayne and others for the past several legislative sessions.
With the Kentucky Forward Plan in place, Kentuckians who qualify for the federal EITC would get an additional 15% of their federal EITC amount in the Kentucky state tax return.
"It doesn't take a genius to see that now more than ever families and communities need this legislation," said Sam Hall, Perry County KFTC member and father of three.
"Every spring my EITC money helped me afford to go back to school and raise my kids. Sometimes it would pay the rent ... and it would help with school clothes. I used it and it helped me."
"A state EITC would mean a lot to Perry County," Hall added. "People would be paying their bills with this money. They'd spend it right there in the county."
What is an Earned Income Tax Credit (EITC)?
The EITC is a tax credit for low- and moderate-income working families. The federal EITC has been in place since 1975, and 26 other states – including three of Kentucky's neighbors – have adopted a state EITC because of its effectiveness. The Kentucky Forward Plan calls for a Kentucky EITC that is 15% of the federal credit.
Why does Kentucky need an EITC?
Kentuckians deserve the opportunity to lift themselves out of poverty.
The EITC is designed to help people afford to work by offsetting the rising costs of child care, transportation, and utilities that working families need. Families get it by filing their taxes, so it comes when heating costs are the highest and "extra" job – seasonal jobs, outdoor labor, etc. – opportunities are often the lowest. The EITC fills a gap to keep families stable and able to work.
The size of the EITC is based on income and family status. Once a taxpayer’s income reaches a certain amount, the credit reaches its peak, after which it begins to phase out. The credit phases out at $45,060 for families with three or more children.
More than 400,000 Kentucky families would benefit directly from a refundable state EITC, and we'd all benefit from the economic impacts.
Kentucky can do better
Kentucky's poverty and unemployment rates are chronically higher than the national average. A refundable state Earned Income Tax Credit, especially with broader reforms and especially with wages that keep pace with the costs of living.
The EITC is associated with healthier babies, improved educational outcomes for children, and higher rates of employment and earnings later in life.
- Research has found an association between EITC expansions and improvements in birth weight and fewer premature births.
- Raising family income through refundable tax credits makes it more likely that children in a family will attend college.
- According to one study, adding $3,000 a year in EITC income to children in working-poor families before age six increases those kids’ annual earnings as adults between ages 25 and 37 by 17 percent.
What would a 15% state EITC provide to Kentucky’s working poor?
Family status | Income range where EITC is greatest | Income where the credit phases out | Maximum amount of federal credit | Maximum amount of state credit |
Single/no children | $5,100-$6,710 | $12,080 | $412 | $ 61.80 |
Joint/no children | $5,100-$8,710 | $14,080 | $412 | $ 61.80 |
Single/1 child | $7,660-$14,760 | $31,888 | $2,747 | $ 412.05 |
Joint/1 child | $7,660-$16,760 | $33,888 | $2,747 | $ 412.05 |
Single, 2+ children | $10,750-$14,370 | $36,222 | $4,536 | $ 680.40 |
Joint/2+ children | $10,750-$16,760 | $38,222 | $4,536 | $ 680.40 |
Sources: Marguerite Casey Foundation, Earned Income Tax Credit: Analysis and Proposals for
Reform, 2005; State EITC Online Resource Center; Kentucky Youth Advocates; Education Week 2007
