Family Prosperity Act Extends, Strengthens Working Family Tax Credits For More Than 400,000 Marylanders

Gov. Wes Moore greets a child during the Family Prosperity Act bill signing.

The passage and signing into law of the Family Prosperity Act in the 2023 legislative session will provide a much-needed boost to the economic security and sustenance of Maryland’s working families, helping more than 400,000 Marylanders afford the basics and invest in their futures.

Working family tax credits, like Maryland’s state Earned Income Tax Credit (EITC) and Child Tax Credit (CTC), are proven, powerful tools that help ensure kids don’t grow up in poverty and help families afford the basic things their households need. Maryland took a big step forward in supporting working families in 2021 when it created a modest CTC, expanded the state EITC to include thousands of low-income workers who were previously ineligible for the credit, and increased the value of the credit for all recipients. The Family Prosperity Act made those changes permanent and strengthened the Child Tax Credit.

Preserving a Stronger Earned Income Tax Credit

Whether it’s covering a large one-time expense, like a car repair or books for school, or making it easier to cover the monthly bills, refundable tax credits can have a powerful impact. With rapidly rising costs for everyday essentials like food, gas, and rent, Maryland families need this support more than ever. The Family Prosperity Act made permanent the 2021 expansion of the EITC which:

• Increased the average state credit to $1,100, with more than 400,000 Marylanders benefitting from this larger credit
• Made more than 90,000 workers not claiming dependents eligible for a maximum credit of more than $500, several times greater than the credit they were previously eligible for. The Family Prosperity Act allows the max credit to increase with inflation, matching 100% of the federal credit for workers not claiming dependents on their taxes.
• Expanded eligibility for the credit to more than 100,000 immigrant taxpayers, with 30,000 to 40,000 households per year newly receiving the credit based on Tax Year 2020 and 2021 filings, according to data from the Comptroller’s Office.

Permanently expanding the EITC also makes our tax system more equitable. The lowest-income Marylanders now pay about 9.8 percent of their income in state and local taxes – a greater share of their income than the wealthiest 1 percent of Marylanders (those earning more than $534,800 per year). The Family Prosperity Act is a meaningful step towards correcting this imbalance.

Due to various structural barriers to opportunity, Black and Latinx workers are far more likely than white workers to earn poverty-level wages and are therefore more likely to qualify for the EITC. While state and federal EITCs serve a larger number of white households than households in any other racial or ethnic group, they serve a larger proportion of people of color. EITCs also have a disproportionate impact in reducing poverty rates among households of color.

Reducing Child Poverty Through a Stronger Child Tax Credit

The Family Prosperity Act also builds on the modest state Child Tax Credit the General Assembly enacted in 2021 and extend a much-needed income boost to at least 34,000 Maryland children in very low-income households who are now locked out of the full federal CTC.

The federal Child Tax Credit provides families an income boost of up to $2,000 per child at tax time. The credit benefits households in a wide range of income levels, with the majority taking home between $10,000 and $75,000 each year. About 300,000 Maryland households claimed the low-income (refundable) portion of the credit in 2016. Research has long shown that this income boost can bring lifetime benefits—improving children’s health, helping them succeed in school, and ultimately enabling many to get better jobs in adulthood.^[i] Yet for many children who would gain the most from increased family income, the credit currently provides only small benefits or leaves them out entirely:

• Families whose income is less than $2,500 per year are not eligible to claim the credit at all.
• Families with slightly higher incomes—up to about $25,000 for a single parent with one child, or higher for larger families—can claim a partial credit, but are not eligible for the full $2,000 per child.
• The Trump administration’s signature federal tax overhaul expanded the maximum value of the credit from $1,000 to $2,000 per child, but capped the refundable portion that is most helpful to low-income families at a lower amount. This choice shut struggling families out of the biggest benefits, even as the law handed a windfall to large corporations and wealthy individuals.

The Family Prosperity Act guarantees low-income families with young children (under age 6) or children under 17 with a disability a refundable tax credit of $500 per child. It also removes the sunset and makes the credit permanent. Unlike the federal credit, it does not lock out children in families with the lowest incomes or children without a Social Security number. Altogether, it would put $17 million into the hands of thousands of families each year, benefiting 34,000 or more Maryland children. This modest income boost could mean better access to nutritious food or enriching reading materials, or could even help keep the electricity or heat on.

While there are not sufficient data to estimate the characteristics of people who would benefit from the Child Tax Credit portion of the bill, data from the federal Child Tax Credit as well as legislation to improve the credit suggest that the bill would likely bring the largest benefits to women and people of color:

Analysis of the Working Families Tax Relief Act, a federal bill proposed in 2020 to expand and improve the federal Earned Income Tax Credit and Child Tax Credit, included reforms similar to those in the Family Prosperity Act. Among households expected to benefit from this bill, 57% were households of color; 40% were Black households; 11% were Latinx households; and 8% were Asian, American Indian/Alaska Native, or belonging to another racial group.

Because the Family Prosperity Act increases benefits for families with the lowest incomes—who, because of historical and ongoing policies, are disproportionately made up of women and people of color—it would likely have even greater benefits for these groups than the current Child Tax Credit. It also departs from the 2017 tax law approach of intentionally harming people born outside the United States and instead 0ffers the credit to immigrant and United States-born children equally.

Room for Further Improvement

Unfortunately, the Family Prosperity Act currently leaves out one additional reform that was included in similar legislation in the past (HB 992 of 2022). This change would address one other issue affecting workers who don’t have children or don’t claim their child as a dependent on their taxes. Once people in this group earn just over $16,480 per year, they are no longer eligible for the credit. That means someone working full time at Maryland’s minimum wage and not claiming dependents on their taxes would earn too much to qualify for the EITC, even though they are still likely earning too little to support even themselves. In fact, many who work for very low wages are effectively taxed deeper into poverty because they don’t qualify for a meaningful tax break.

MDCEP recommends building on The Family Prosperity Act in the next legislative session by increasing the maximum income for the state EITC for single filers to ensure it is as effective for them as it is for families with children. People who don’t claim a dependent child still can be in a caregiver role, such as a non-custodial parent, an expectant parent, or someone informally helping support and care for a family member. Other recipients are young people just starting out in the workforce and trying to support themselves. All would see significant benefits from the increased income limit.

There is also ample opportunity to strengthen the state’s Child Tax Credit so it reaches more families. While policymakers did the right thing in focusing the state credit on the lowest income households, the temporary expansions of the federal CTC in 2021 showed the power of this anti-poverty tool on a broader scale. MDCEP’s Roadmap for Tax Justice report shows one example of how a more robust CTC could help thousands more low- and moderate-income Maryland families as part of an effective and more equitable state tax system.