Landmark Tax Changes Will Help Hundreds of Thousands of Marylanders Make Ends Meet

Today’s Tax Day – the federal tax filing deadline – comes after a series of expansions of working family tax credits that will provide critical financial support to low- and moderate-income Marylanders as the state continues to recover from the economic effects of the COVID-19 pandemic. These changes will help hundreds of thousands of Marylanders afford their basic household expenses and are a first step toward a more equitable tax system.

The Earned Income Tax Credit and Child Tax Credit have a long history of reducing the number of children living in poverty. Recent federal and state expansions of the credits will build on that success by increasing the value of the credits and addressing structures that have excluded certain groups from receiving the credits. We know that people will still be struggling to get by on low incomes when the pandemic is fully under control. Policymakers at the federal and state level should build on these expansions by making them permanent and continuing to close other gaps.

Earned Income Tax Credit

The EITC is a tax credit that creates greater economic security for low- and moderate-income working people. Once of the things that makes it powerful is that it is a refundable credit, meaning that it can increase the size of a recipient’s tax refund, rather than just reducing the amount of taxes they owe.

While it is available to people without children, the credit historically has been much more generous for people who claim dependent children on their taxes than for people who don’t. Because of this, people without dependents have been the one group essentially taxed further into poverty. And, while all people deserve economic security regardless of whether they have children, this policy does harm children as well. People excluded from the more generous EITC can include parents who don’t have primary custody of their children,  someone who is preparing to have a child, and other caregivers.

The federal American Rescue Plan expanded the EITC for workers without dependents in several different ways:

• Removes most age restrictions, so that adults 19 and over can qualify for the credit if they meet the other criteria
• Increases the maximum value of the credit from about $540 to about $1,500
• Increases the maximum income to qualify to around $21,000

These changes will provide additional economic support to about 255,000 Marylanders when they file their 2021 taxes next year. However, Congress still left in place a discriminatory policy that excludes immigrant taxpayers who file taxes using an individual taxpayer identification number (ITIN) rather than a Social Security number from receiving the credit.

Maryland policymakers also expanded our state EITC in several key ways:

• Allowing all taxpayers, including people who file taxes with an ITIN, to receive the credit if they fall within the income range and meet the other requirements
• Increasing the value of the credit for families with kids to 40 percent of their federal credit, up from 28 percent
• Increasing the maximum value of the credit for workers without dependent children to $530

The expansions of the state EITC are in place for three years and will apply to Marylanders’ 2020 tax returns, which are due to the state by July 1.

Child Tax Credit 

The American Rescue Plan also included a significant expansion of the Child Tax Credit, addressing critical gaps in who is able to receive the credit and for the first time providing it as a monthly benefit, rather than one lump sum at tax time. The law also increased the maximum benefit, which means a bigger income boost families can use to pay for essentials. Today, the IRS announced that the monthly payments included in the American Rescue Plan will begin July 15.

Families need to buy diapers, food, and school clothes for their kids and to pay rent throughout the year. Delivering the Child Tax Credit monthly, rather than as a lump sum after the year has ended, can help families make ends meet by boosting their incomes throughout the year.

Tax changes in 2017 made the Child Tax Credit more generous for middle- and higher-income households but left out low- and no-income families. Those earning less than $30,000 were not eligible for the full credit and those with $2,500 or less income received no credit at all. Those changes also took away the credit from immigrant families with children who don’t have a Social Security number who had previously been eligible for the credit.

The American Rescue Plan changes ensure that families with no and low incomes are eligible for the full credit, which will benefit 353,000 Maryland children were left out of receiving the full credit, about three-quarters of whom are Black, Latinx, Asian, or other people of color. However, federal policy does still exclude immigrant children who don’t have Social Security numbers.

Altogether, these changes are expected to benefit about 1.1 million children in Maryland. However, like the federal EITC expansions, these changes are currently only in place for one year.

What’s Next

These tax credit expansions represent a historic reduction in child poverty in the United States, reducing the number of children whose family incomes are below the federal poverty level by about 40 percent nationwide. Reducing childhood poverty has lifelong benefits and is linked to better health, more success in school, and even higher earnings later in life.

President Biden has proposed making these tax changes permanent through the American Families Plan. We should not return to policies that exclude people who most need support or leave millions of children to grow up in poverty. Congress should make it a priority to make these changes permanent, and continue to address harmful and discriminatory gaps in the tax credits, particularly policies that exclude immigrant taxpayers from receiving the same credits that others do.