The Earned Income Tax Credit (EITC) is widely recognized as one of the most effective policies at keeping low-income working families out of poverty by supplementing wages and encouraging work. It is estimated that the federal EITC kept 6.5 million working Americans out of poverty in 2012.
Rhode Island is among 25 states and the District of Columbia that offer a state EITC, but unlike most states, the credit is only partially refundable. Just over 83,000 Rhode Island taxpayers claimed the state’s EITC in Tax Year 2012 . The average credit was $119. Of those taxpayers receiving a credit, 73,119 received a refund, averaging $82.45.
Rhode Island should enhance the effectiveness of the state EITC for low-wage workers by making the credit fully refundable. To offset some of the cost of enacting this change, the credit could be reduced from 25 to 20 percent. In addition to the benefits outlined above, an enhanced state EITC would help offset the impact of regressive state and local taxes, help pay for one-time expenses such as car repairs and security deposits, and help families meet basic living expenses.