Credit: (Thomas Costello, Gannett)The state budget Gov. Phil Murphy signed into law several weeks ago increased funding for tax breaks that help New Jersey residents who have low-wage jobs and struggle to stay out of poverty.
The additional state funding for what’s known as the Earned Income Tax Credit is now being used by the Murphy administration to both expand the size of the tax break and allow more low-wage workers than ever to qualify for it.
Advocates say the tax break and other services for low-income residents have become more important this year due to the economic downturn triggered by the coronavirus pandemic.
But even with millions of dollars in new state funding now firmly secured, state officials still face another big challenge: making sure everyone who qualifies for the Earned Income Tax Credit will apply for it when they file their taxes.
State records show up to a quarter of residents who could receive the tax credit do not apply for it, for one reason or another. The Murphy administration is making a concerted effort to close the gap, including by partnering with groups that work closely with low-income residents to help spread the word.
Not taking advantage of ‘vital lifeline’
“We are acutely aware that there are many people throughout New Jersey who qualify for the Earned Income Tax Credit, but are not taking advantage of the vital lifeline for various reasons,” said state Treasurer Elizabeth Maher Muoio.
Commonly referred to as the EITC, New Jersey’s Earned Income Tax Credit was established roughly two decades ago to piggyback off a federal tax-break program that has the same name. The tax credit funded by the state is calculated as a percentage of what the federal government provides, and can add up to thousands of dollars for some recipients on top of what they receive from the Internal Revenue Service.
The amount of an individual’s state and federal credits vary based on things like annual income and whether a recipient has children. But the EITC works as a refundable credit, meaning those who qualify will get a refund even if their credit is larger than what they owe in taxes.
The EITC has had widespread support from both Democrats and Republicans in New Jersey, and Murphy, a first-term Democrat, launched the latest expansion of the state program in 2018.
Under that initiative, the size of New Jersey’s EITC has been growing steadily over the last few years. The latest expansion was funded in the budget Murphy signed into law in late September, and it pushes the size of the state EITC up to 40% of the value of the credit provided by the federal government.
More people are eligible for the tax break
This year, state lawmakers also approved legislation that widened the group of workers who are eligible to receive the state EITC. Under that policy change, which goes into effect immediately for the 2020 tax year, the minimum age of eligibility for the state version of the EITC was lowered, from 25 years old to 21 years old. The upper age limit for the state EITC will remain 65.
State officials estimate some 600,000 New Jersey residents qualify for the state EITC each year, and the new age limit is expected to establish eligibility for an additional 60,000.
Under income qualifications that are set by the federal government, residents who make up to $15,820 annually and who have no children are eligible to receive the credit for the 2020 tax year.
For those with children, the income limit is much higher; it rises to $50,954 for those with three or more children, according to the IRS. For married couples, annual income limits for the 2020 tax year range from $21,710 for couples with no children, to $56,844 for those with three or more children.
In the context of New Jersey’s roughly $40 billion annual budget, the cost of funding the EITC expansion is modest.
Going from 39% of the federal benefit to 40% was projected to cost less than $20 million, according to estimates drafted by the Office of Legislative Services. Lowering the age limit from 25 to 21 was projected to cost an additional $11 million, OLS estimated.
Trying to get the word out
Advocates have long argued that the state gets a big bang for its buck from the EITC, and as proof, they point to studies that show it consistently helps lift families out of poverty, which, in turn, reduces their reliance on the more costly state assistance programs.
Even before this year’s widening of eligibility for the EITC, state officials say they had been trying to drive up the number of people who receive it.
As part of those efforts, Treasury has produced an online promotional video and brochures that highlight the EITC’s benefits. Treasury officials have also been working closely with first lady Tammy Murphy to increase awareness, and a social-media campaign was also launched.
There are also plans to work with additional partners to get the word out to more individuals, officials said.
“This administration has been working hard over the last few years on all fronts to get this money into the hands of many more eligible New Jerseyans,” Muoio said.
Organizations that serve the state’s most vulnerable populations are also redoubling their outreach efforts in a year when many residents have suffered economic hardships because of the pandemic.
Among those groups is New Jersey Citizen Action, which provides a number of services to low-income residents, including financial coaching, health enrollment and housing counseling.
“The pandemic has made everything financially harder for the families we seek to support and the EITC and all the services we offer are important to get them back on their feet,” said Dena Mottola Jaborska, the group’s associate director.
More information about the New Jersey EITC is available here.
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Thousands of qualified residents fail to claim low-income tax break. State campaigns for more to apply - NJ Spotlight
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