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California budget could expand tax credit for working poor

The stock market and the economy are booming, yet high-income earners in California paid less tax in June than analysts expected.
Photo by 401(K) 2012 via Flickr Creative Commons
By the next tax day, over a million poor working families in California could be eligible for an earned income tax credit.

The number of Californians eligible for the state's earned income tax credit is expected to surpass one million under changes to the credit in this coming year's budget. 

As part of the 2017-2018 state budget, lawmakers agreed to expand the credit, available to low-income workers, to people with self-reported income. The expansion also raises the income levels for eligible people to over $22,000, from $14,000, for a family of four. To qualify, a person or family must have some sort of income.

About 400,000 households have claimed the credit in the past, but that number's expected to rise as an estimated 1.1 million become newly eligible for the credit. 

"This is a sensible approach to support working families," said State Sen. Holly Mitchell of Los Angeles, chair of the Senate Budget Committee. "This historic action allows more working poor families to use dollars in ways that best suits their families’ needs.”  

Joe Sanberg, an entrepreneur and investor who helped push for adoption of the credit in California a couple years ago, said expansion was hard-fought and vital.

"Self-reported income is the fastest growing type of income – the kind of income you report when you garden, or keep a house, or drive for a ride-sharing company," he said. "And it's a basic injustice that it hasn't counted for an earned-income tax credit."

Some lawmakers had been concerned about the potential for fraud when reporting self-employment, but were evidently able to overcome those fears as the budget process played out. 

Awareness of the credit has also been an issue. 

A study published by the California Budget Policy Center in April found that "fewer than 1 in 5 visitors to county human services offices who were likely eligible for this new tax credit had heard of it."

Sanberg, who founded CalEITC4Me to raise awareness of the credit, said new programs tend to take a little while before they reach mass public awareness. 

Alissa Anderson of the California Budget Policy Center said many families who qualify for the credit make so little money that they're not required to file tax returns, so getting them to do so is key. 

Filing a return also opens families up to the federal credit, and potentially thousands of dollars in cash. 

"We're talking about a really significant increase in their income," Anderson said. "It's a proven policy."

Governor Jerry Brown still has to sign the budget before the expansion's finalized.