State Policy

When it comes to improving the lives of hardworking Utahns, we need policies that help those who are struggling to make ends meet. A refundable Earned Income Tax Credit (EITC) could do just that.

Let's start by discussing what the earned income tax credit is and how it benefits working families and children.

What is an Earned Income Tax Credit?

You may already know about the federal Earned Income Tax Credit (EITC). It is a refundable federal income tax credit for low- and moderate-income working people, that was created to support people who are in the workforce but need extra support to meet their families' needs. To claim the federal EITC, you must have earned income and everyone on your tax return must have a social security number.

The amount of your credit will be determined by your family's earnings, as well as the number of children you have. The EITC credit may help to reduce the amount you owe on your federal taxes - and if the EITC amount is higher than the federal taxes you own, you can actually get money back from the government. 

The EITC is a critical policy tool to support financial stability in working families. Even just a few hundred dollars a year can help families stay current on bills, purchase groceries, afford car repairs, or pay down debt.

How does Utah's Earned Income Tax Credit work? 

Because the federal EITC has been so effective at supporting working families, many states have created their own Earned Income Tax Credits in order to help these families even more. Currently 31 states offer a state EITC. Utah enacted a limited EITC for families with children in 2022.

Calculating your state Earned Income Tax Credit amount in Utah is easy: it will be 20% of whatever your federal EITC amount is when you file both your federal and state taxes. However, due to the way it was structured by the state legislature, Utah's EITC currently excludes many hardworking families who should benefit. Edited EITC states graph

Our state EITC's biggest limitation is that it is "non-refundable." Utah is one of only five states with this exclusionary policy. Unlike the federal EITC, Utah's tax credit can only be applied to the income taxes you owe. You will never receive any money back from claiming the state EITC. Unless your state taxes add up to the amount of the state EITC you are allowed to claim, or more than that amount, your family misses out on the full benefit. 

A refundable state EITC is a simple and cost-effective way to level the playing field for Utah families. These days, families who don't make a lot of money struggle to afford to live and raise a family in Utah. Especially for families with young children, who are just starting out in their careers, every little bit of extra financial support really helps. 

State leaders say that our state EITC is meant to provide a maximum benefit for working families with children, with annual (adjusted) incomes between $11,000 and $26,000. Imagine a family with two young children, where one parent is still in college, and the other parent works only 32 hours a week. Because Utah's EITC is not refundable, none of the struggling families in this income range will see any benefit from the tax credit. 

Though they don't make a lot of money, these people actually pay more taxes, as a percent of their income, than the wealthiest people in Utah. These hard-working families deserve a refundable state tax credit.

Our state EITC policy also requires that your earned income must be reported on a W-2 form, as proof of your work. This requirement means the state EITC can't be claimed by self-employed people, people who work on contract and people who participate in the "gig economy" (such as driving for Lyft or watching pets through Rover). Even though these workers may be eligible for the federal EITC, they can't benefit from the state credit because they don't receive a W-2 to recognize their hard work. 

What is Refundability? 

A refundable tax credit means that if the amount of the credit is more than the amount of taxes you own, you can get the extra amount back as a refund payment! 

A non-refundable tax credit means that the amount of the credit can only ever offset the amount of taxes you owe. You can't benefit from any portion in excess of the income tax you owe, and you can't carry any unused portion of the credit over into another tax year. 

Here's how this difference plays out in Utah for a married couple with two children, filing their taxes jointly. In this hypothetical family, one parent earns $39,000 working full-time (about $19/hr), and they only owe $200 in state income tax. If Utah’s EITC were refundable, they would realize the full benefit of the credit by receiving a refund of $300. Because our state EITC is non-refundable, that $300 just disappears. After it cancels out the $200 in taxes the family owes, Utah's EITC stops working. 

EITC example

In the coming year, legislators have the opportunity to empower working families in Utah with a much better Earned Income Tax Credit. By making our state Earned Income Tax Credit (EITC) refundable, state leaders could tangibly enhance the lives of these families, providing them with essential financial support needed for their daily well-being. If you're curious about the significance of equitable tax policies and the intricate web of tax distribution, learn more by following the link provided below. 

Learn More About Tax Fairness


Glossary

Tax Credit: a dollar-for-dollar amount that a taxpayer (s) claim on their tax return to reduce the income tax they owe. You can use this to reduce your tax bill and potentially increase your refund amount.

Tax Liability: the amount of taxes owed by a taxpayer to the government before taking into account allowable tax credits.

Nonrefundable Tax Credit: reduces the taxes you owe --- allows a taxpayer to only receive a reduction of their tax liability until it reaches zero.

Refundable Tax Credit: allows a taxpayer to receive a refund if the credit they receive is greater than their tax liability.

Sources

Published in News & Blog

Tax policy is complicated. Talking about taxes involves jargon, and concepts that can be confusing. For example, what is a 'refundable' tax credit? What exactly does that mean, and how does it help families? We answer these questions here with a quick breakdown of what refundability is and how it impacts families.

What is a "refundable" tax credit?

When a tax credit is refundable, it is available to all families. Even if a family doesn’t owe anything when they file their income taxes, a refundable tax credit makes it possible for them to get money back in the form of a tax refund. Families can then use that money to pay for necessities. 

What is a "non-refundable" tax credit?

A non-refundable tax credit can only ever be used to pay for taxes. If a family doesn’t owe any taxes after deductions, they can’t access any of the tax credit. If the family only owes a little in income taxes, they can only use the non-refundable credit to pay down whatever they owe.

How does refundability impact a family like yours?

In the illustrated example below, the Thompsons have two young children and make a family household income of $39,520 for the year. Based on their income and after deductions, they owe $200 in taxes. Now imagine they qualify for a $500 tax credit. Refundability can greatly impact how much they owe in taxes and whether they'll keep more of their earnings through a refund. 

If the $500 tax credit is non-refundable, it will be applied to offset what the Thompsons owe in taxes. Since they owe $200, the credit will help reduce the amount they owe to $0 – a positive outcome.

However, an even better outcome for young families arises when that $500 tax credit is refundable. If refundable, the $500 tax credit can go towards the amount they owe in taxes ($200) and the remaining amount of $300 would go back to the Thompsons as a refund. This $300 can help with expenses like car repairs, new winter coats for the kids, and baby formula. Though it may not seem like a lot, families facing financial challenges can make good use of this help.

Refundability 101 1

  

To learn more about making Utah’s EITC refundable, go here.

To learn more about making Utah’s CTC refundable, go here.

To read about other refundable tax credits in Utah, go here.

 


Glossary

Tax Credit: a dollar-for-dollar amount that a taxpayer (s) claim on their tax return to reduce the income tax they owe. You can use this to reduce your tax bill and potentially increase your refund amount.

Nonrefundable Tax Credit: reduces the taxes you owe --- allows a taxpayer to only receive a reduction of their tax liability until it reaches zero.

Refundable Tax Credit: allows a taxpayer to receive a refund if the credit they receive is greater than their tax liability.

Tax Policy: policies that determine how we collect taxes.

Published in News & Blog

Congratulations, Utah parents and educators! Together, we did it. Funding for optional full-day kindergarten is now a reality for schools statewide. 

The Utah Legislature passed HB477, "Full Day Kindergarten Amendments," sponsored by Rep. Robert Spendlove (R-Sandy). This bill establishes the same flexible, stable funding stream for full-day kindergarten as currently exists for all other grades of public school, first through twelfth. Last week, Governor Spencer Cox signed this historic bill into law! 

(Click here to jump to our four-minute explainer video, which is also included at the bottom of this page)

Does this mean that next school year, every family in Utah will have the opportunity to enroll their kindergartner in a full-day program in their neighborhood school? Unfortunately, no. It DOES mean that the number of families who will have access to full-day kindergarten will increase dramatically - we estimate between 60% and 65% of kindergarteners will be able to enroll in an optional full-day program during the 2023-24 school year. This is is a huge leap from fewer than 25% just five years ago!

The passage of HB477 means that next school year (2023-24), every district and charter elementary school will have the opportunity to offer optional full-day kindergarten, using this new state funding stream. 

In order to offer more full-day kindergarten, schools must have more classroom space, more teachers, and more equipment like tables and chairs. Some school districts and charter schools have spent the last several years making plans to overcome these challenges, and will be ready to offer optional full-day kindergarten to most, if not all, of their local families in the coming school year. 

Some elementary schools are not quite ready to take advantage of this opportunity. These schools will need some time to overcome the challenges of: 1) limited classroom space; 2) recruiting new teachers; 3) purchasing new materials and equipment; 4) busing adjustments; and other practical issues. This is true particularly in some of our large, suburban school districts, such as Jordan, Davis and Alpine. Other small- and mid-size districts face some of these issues, as well. 

We estimate that it will take between three and five years before all Utah families have the opportunity to enroll their child in a full-day kindergarten program. Based on the popularity of newly expanded full-day programs in different parts of the state, we expect to see more than 90% of parents opt for full-day kindergarten for their children when it becomes available to them. 

The best way to find out whether your local elementary will be offering optional full-day kindergarten during the 2023-24 school year is to contact the current principal of that school (or the director, in case of charter schools) and ask them directly! Not only will this help you to plan for your family's schooling schedules, but it will help our local education leaders assess how much community interest exists for more optional full-day kindergarten. 

In case you were worried, the new law preserves parents' right to enroll their child in a half-day program, and does not make kindergarten mandatory. There is nothing in the law that tells districts and charters how much optional full-day kindergarten they must offer to their communities, or how soon they have to do so. HB477 was created to be as flexible as possible, allowing local communities to decide the right mix of half- and full-day programming for them. 

Thanks to all the hard work of education leaders, insistent parents and committed community advocates, we have finally accomplished state funding for optional full-day kindergarten in Utah! We especially appreciate the commitment of the United Way of Salt Lake and the Utah PTA, our core partners in the Utah Full-Day Kindergarten Now Coalition.

Of course, this would not have happened without the support and leadership of State Superintendent Sydnee Dickson, Sara Wiebke, Christine Elegante and other superhero staff at the Utah State Board of Education. We owe a lot to our bill sponsor, Rep. Spendlove, and the other legislative champions like Senator Ann Millner who have been key to this effort in the past (former Reps. Lowry Snow and Steve Waldrip, we are looking at you!). 

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