The Illinois Earned Income Tax Credit
What is the Illinois Earned Income Tax Credit? It is the only tax benefit that expressly encourages and rewards work – a tax credit that last year benefited nearly 750,000 low-income, working families statewide. It is based on the federal EITC, which long has enjoyed strong bipartisan support. Eligible working families receive a credit of up to $220 – money they can invest in necessities ranging from housing and groceries to savings for college tuition and household emergencies.
Why the EITC? It provides a strong work incentive for low-income families by “making work pay,” allowing them to hang onto more of their hard-earned money at tax time. It helps to reduce the heavy responsibility that too many of them shoulder in state and local taxes – just as the federal EITC offsets the effect of the payroll tax. The EITC represents targeted assistance for struggling families who need it most.
Consider that in Illinois the poorest one-fifth of Illinois households pay about 13 percent of their incomes in state and local taxes, while the wealthiest 1 percent of earners spend less than 5 percent of theirs on such taxes. Low-income families simply pay more than their fair share for the public goods that we all enjoy – from roads and schools to police and fire protection. The EITC helps to reduce this disparity. And because families spend their EITC money at the local level, many economists say this credit provides true “economic stimulus” for businesses and communities.
How can the EITC be improved? Illinois' EITC is set at 5 percent of the federal EITC. It is the smallest of the nation's 21 state EITCs.
More working families than ever before are now eligible for the Illinois Earned Income Tax Credit (EITC) as SB 338 was signed into law.
The new law simplifies the Illinois EITC statute ensuring that all low-income, working Illinoisans who receive the federal EITC also get the full amount of the state EITC.
Background: Because of confusing and unnecessary statutory language regarding the refundable portion of the state EITC, the Department of Revenue (DOR) has excluded the following groups of taxpayers from receiving EITC refunds:
The existing statutory language also has led the DOR to create a complicated worksheet in its tax-form instructions, confusing may Illinois taxpayers and causing them not to apply for the state EITC even though they are eligible for it.
Sadly, Illinois taxpayers are up to three times less likely to receive their state EITC than taxpayers in other states.
SB338 removed the confusing and unnecessary statutory language, granting Illinois working families an additional $4 million in EITC assistance in 2008.
Congratulations to members of the Make Work Pay Coalition whose efforts helped this bill become law.
If you would like to join the Make Work Pay Coalition contact Chrissy Mancini at firstname.lastname@example.org
Analysis & Reports
Find out if you are eligible for the Illinois Earned Income Tax Credit
Together, State Minimum Wages and State Earned Income Tax Credits Make Work Pay, from The Center for Budget and Policy Priorities finds that state EITC's are an effective method for fighting poverty.