By DUANE M. ELLING
Low- and moderate-income working families in Michigan will soon have access to an important mechanism for making work pay, thanks to the passage of a state Earned Income Tax Credit (EITC).
Michigan’s EITC, expected to be phased in during 2008 and 2009, will reduce or eliminate the state income taxes owed by many of these households. The tax credit will be refundable, with eligible participants receiving tax refunds in cases where the calculated credit exceeds the tax owed.
Nineteen other states and the District of Columbia currently offer state EITCs. Each builds on the federal EITC, approved in 1975 and expanded as recently as 2001.
The federal credit reduces the federal income taxes owed by eligible workers. It is also refundable and provided an average federal tax refund of $4,500 in the 2005 tax year.
Participation in Michigan’s EITC is based on eligibility criteria for the federal credit. Those who qualify will be able to claim a state credit of up to 20 percent of their federal EITC by 2009. As a result, a family of four earning less than $20,000 a year could receive an average state tax credit refund of $880.
Legislation paving the way for the Michigan EITC received bi-partisan support among state policymakers. It was signed into law by Governor Jennifer Granholm in September during a visit to the city of Flint.
Advocates in Michigan hail the new tax credit as an important win for the state’s working poor.
“EITCs provide a much-needed income supplement to families who are working hard, yet still struggling to make ends meet.” “EITCs provide a much-needed income supplement to families who are working hard, yet still struggling to make ends meet,” said Sharon Parks, vice president for policy at the Michigan League for Human Services (MLHS). “The combined [federal and state] credits will make a significant difference for many of these families in Michigan.”
MLHS is a participating member of the State Fiscal Analysis Initiative (SFAI). The SFAI -- founded in 1993 by the Mott, Ford and Annie E. Casey foundations -- is a network of state-level organizations seeking to impact regional economic and related social issues.
MLHS informed the debates over the state EITC by providing relevant budget and tax analysis. It helped policymakers understand the positive economic impact that such programs can have on the communities in which participants live. And it educated other organizations concerned about the state’s low-income children and families.
The launch of Michigan’s EITC will mean continued outreach to the state’s working poor, says Parks. She notes that enrollment in the state EITC requires participation in the federal program. And, according to the state’s General Accounting Office, nearly $400 million in federal EITC funds in 2002 went unclaimed by qualifying workers in Michigan.
“We need to bring as many eligible Michigan families as possible into these programs,” said Parks. “It’s a fantastic opportunity to help them work their way out of poverty.”