Earned Income Tax Credit. The earned income tax credit (EITC) is a federal refundable tax credit for individuals with low to moderate income. Qualified individuals receive a credit on their federal tax return. The size of an individual's benefit from the EITC depends on the recipient's income, marital status, and number of children. The credit amount is a fixed percentage of earnings that increases with each dollar earned until it reaches a maximum level and then begins to phase out at higher income levels. The EITC is refundable, meaning it can exceed an individual's income tax liability.
To be eligible for the EITC, an individual must have at least one qualifying child or be between the ages of 25 to 64 with no qualifying children. Claimants must be either a United States citizen or a resident alien and have a valid social security number. For the EITC, earned income includes wages, salaries, tips, and other employee compensation, plus net earnings from self-employment for the taxable year. A person is not eligible for the EITC if their aggregate amount of disqualified income such as interest, dividends, or capital gain income exceeds $3,650 in the taxable year.
Earned Income Tax Credit—Maximum Income and Maximum EITC for Tax Year 2021
|Children or Relatives Claimed|
(filing as a single, head of household, or widowed)
(filing as married filing jointly)
|Maximum EITC Amounts |
(based on the number of qualifying children claimed)
Working Families' Tax Exemption. In 2008, the Legislature enacted a state-level benefit program called the Working Families Tax Exemption (WFTE), based in part on the federal EITC program. The state exemption is modeled as a sales and use tax remittance program. To be eligible, a person must have paid Washington State and local sales and use taxes, received a federal EITC benefit, been a resident of Washington for more than 180 days for the year in which the exemption is claimed, and apply to the Department of Revenue (DOR) for the remittance. The program has never been been fully funded or authorized in an enacted state operating budget. If it was implemented or funded, the remittance would be equal to the greater of 10 percent of the person's federal EITC credit, or $50.
The WFTE is under the administrative purview of DOR, and must be approved in the state operating budget before any exemption benefits may be paid.
Individual Taxpayer Identification Number. An individual taxpayer identification number (ITIN) is a tax processing number issued by the Internal Revenue Service (IRS). The IRS issues ITINs to individuals who are required to have a United States taxpayer identification number but who do not have, and are not eligible to obtain, a social security number from the Social Security Administration. ITINs are issued regardless of immigration status, because both resident and nonresident aliens may have a United States filing or reporting requirement under the Internal Revenue Code. ITINs do not serve any purpose other than for federal tax reporting. People in one of the following categories are required to obtain an ITIN:
Tax Preferences. State law provides for a range of tax preferences that confer reduced tax liability upon a designated class of taxpayer. Tax preferences include tax exclusions, deductions, exemptions, preferential tax rates, deferrals, and credits. Legislation that establishes or expands a tax preference must include a tax preference performance statement that identifies the public policy objective of the preference, as well as specific metrics the Joint Legislative Audit and Review Committee (JLARC) can use to evaluate the effectiveness of the preference. All new tax preferences automatically expire after ten years unless an alternative expiration date is provided.
Working Families' Tax Exemption. A WFTE, in the form of a remittance, is provided to eligible low-income persons for sales and use tax paid after January 1, 2022. Eligible low-income person is expanded to include an individual who would otherwise qualify for the EITC except for the fact the individual filed a federal tax return in the prior year using a valid ITIN in lieu of a social security number, or the individual has a spouse without a social security number, or a dependent with a valid ITIN in lieu of a social security number.
For 2023 and thereafter, the working families' tax remittance amount for the prior year is:
The remittance amounts are reduced as follows:
The remittance amounts are to be adjusted for inflation every year beginning January 1, 2024, based on the change in the Consumer Price Index (CPI) during the previous calendar year. CPI means, for any calendar year, that year's average CPI for the Seattle, Washington area for urban wage earners and clerical workers, all items, compiled by the United States Department of Labor, Bureau of Labor Statistics.
A person may claim the WFTE without the Legislature providing an appropriation in the state omnibus appropriations act.
Department of Revenue Responsibilities. DOR must design and implement a public information campaign to inform potentially eligible persons that the WFTE exists and the exemption qualifications. DOR must work with the IRS to administer the exemption on an automatic basis as soon as is practicable. The receipt of any WFTE remittance cannot be used in eligibility determinations for any state income support programs, or in making public charge determinations. If it appears an individual received a remittance they were not entitled to, or a larger remittance than they were entitled to, DOR may assess the overpaid amount against the individual. DOR may assess against the individual's spouse if the remittance in question was based on both spouses filing a joint federal income tax return for the year for which the remittance was claimed.
If DOR finds by clear, cogent, and convincing evidence an individual knowingly submitted, caused to be submitted, or consented to the submission of, a fraudulent claim, DOR must assess a penalty of 50 percent of the overpaid amount, in addition to any other penalties that may apply. Interest as provided state law applies to assessments starting six months after the date DOR issued the assessment until the amount due is paid in full to DOR. If the amount is not paid in full by the due date, or DOR issues a warrant for the collection of amounts due, DOR may access applicable penalties. These penalties may not be due until six months after their assessment.
A remittance may be not provided before January 1, 2022. DOR must use the eligible person's most recent federal tax filing to process the remittance.
Tax Preference. JLARC is required to review the program in 2028 and every 10 years thereafter. The WFTE program expires at the end of the calendar year two years after the adoption of a final report by JLARC that finds that the program does not provide meaningful financial relief to low-income and middle-income households.
PRO: This program was created in 2008 but has never been implemented or funded. Our state tax structure is so regressive that the lowest income people owe more in taxes, so we should have a tax credit program. The program makes our tax system more fair and equitable. By reducing the strains on working families with a tax credit/cash assistance, more money will be spent on essential items like food and investing in car maintenance which would put more money back into the local economy. Between the challenges of being low-income and COVID, the tax credit would go really far in helping people, including students. The credit could help those are who experiencing domestic violence and fleeing. This could help them leave the situation, help with mental health care, and paying rent and utilities.
The committee recommended a different version of the bill than what was heard. PRO: This bill will create more balance in our currently unfair tax code. Our current system is neither fair nor equitable. It is upside down. This bill will help level the system. This bill is a good investment by the state in helping families avoid financial emergencies that could result in homelessness. It is smart to invest in everyday Washingtonians. This bill could be as transformational as other earlier social safety net programs. Cash assistance of even a few hundred dollars can be vitally important. Five hundred dollars to $900 can make a significant difference in anyone's life. The pandemic fallout has been significant for families and these funds can really change someone's life. This bill will put money directly in the hands of Washingtonians who will spend that money in their local economy. The bill makes the state tax code more equitable and more fair by including ITIN filers. This ensures that thousands of additional low-income taxpayers will benefit from this program. After working with the Department of Revenue, this bill represents the most streamlined and efficient administration of this program as possible.