State tax credit for the working poor in heavy demand

More than 70,000 Connecticut households took advantage of a new tax credit for the working poor during just the first month of state income tax filings, according to the Department of Revenue Services.

The claims filed under the new state Earned Income Tax Credit were hailed both by Gov. Dannel P. Malloy's administration and a leading private, nonprofit anti-poverty group as evidence of the new program's necessity as well as its success.

"Higher than anticipated EITC applications show just how hard hit these families were during the recession," Malloy said late last week.

The 70,000 households that have claimed the credit to date have qualified for approximately $49.3 million to date, according to the administration.

"This is good public policy and helping rebuild our middle class," said Liz Dupont-Diehl, policy director for the Connecticut Association for Human Services. "We are delighted that the word is getting out about the EITC, and we're glad Governor Malloy recognizes the power of more money in the hands of working people to stimulate the economy.  Even beyond the immediate benefit of families spending their EITC returns in their local communities is the fact that they are able to build a base for family economic success."

Malloy and the General Assembly established the state credit last May effective in the 2011 tax year. But the first tax returns taking advantage of that credit could not be filed until January.

The new state credit is available to households eligible for the federal EITC, and is equal to 30 percent of the value of the federal credit.

Technically families earning up to $49,000 per year can qualify for a federal Earned Income Tax Credit, depending on the number of children they have. But most EITC recipients earn less than $20,000.

The average federal EITC claimed by Connecticut families over the past three years is about $1,800. Based on that number, the average state EITC -- had it existed during that time -- would have been $540.

Combined with the federal EITC, the maximum payment a Connecticut family can receive is $7,476.

About 190,000 Connecticut households claimed the federal EITC in 2010, and the association is projecting that more than 200,000 households will be eligible to claim both a federal and state credit on their 2011 tax returns.

The legislature's nonpartisan Office of Fiscal Analysis estimated last spring that the state credit would cost state government $110 million this fiscal year. It was unclear Monday if the January claims would alter that projection. The deadline for filing state income tax returns for the 2011 tax year is April 15.

Though the earned income tax credit's main purpose is to help poor families save more, advocates say a significant portion is spent on groceries, clothing and other basic needs -- thereby stimulating the local economy.

"We believe it is already making a difference in residents' lives," Malloy said. "At the same time, it's a real reinvestment in the state's consumer economy."

The Connecticut Association of Human Services is coordinating an outreach campaign to steer needy households to free tax preparation services also run by nonprofits.

The association manages a referral list of more than 40 nonprofits that provide free tax preparation services for families with annual incomes below $50,000, which would cover all EITC-eligible households, Jim Horan, the group's executive director, said. The Infoline service run by the United Way of Connecticut, which can be accessed by dialing 2-1-1, also can refer poor families to free tax preparation services.