In Blog: Factually Speaking, Earned Income Tax Credit, Tax and Budget, Tax Policy

On national EITC Awareness Day, we wanted to spread the news on how the Earned Income Tax Credit (EITC) works to help Michigan residents make ends meet and support our local economies.

1. What is the EITC?

The EITC is one of the most effective federal and state income tax credits that helps working families make ends meet and afford their basic needs. Michigan supplements the federal EITC with a state-level credit equal to 30% of the federal credit. It can be used to reduce any income tax owed, but because it is fully refundable, families that do not owe any federal or state income tax can still benefit and receive a refund.

During 2023, 664,000 Michigan residents claimed and received the 2022 federal Earned Income Tax Credit, with an average credit of $2,587.

 

2. Who is eligible for the EITC?

Michigan residents that work but have low to moderate incomes are eligible for the federal and state EITCs. Eligibility and federal credit amount is determined based on earnings, marital/filing status, the number of children, and age (for workers without children). The state credit is calculated at 30% of the claimant’s federal credit amount.

3. What are the benefits of the Earned Income Tax Credit?

The EITC helps workers make ends meet, allowing them to keep up with the rising cost of essentials like groceries, transportation and child care while remaining in the workforce. It also helps families pay down debt, or allows families to build assets and save for the future, such as for emergencies or a child’s college education.

The EITC has positive, long-lasting effects for children, including better health, higher test scores and increased earnings in adulthood.

The EITC has a direct benefit on local economies, as families that receive the credit tend to use it in the communities in which they live or work. These are dollars spent at local car repair shops, hardware stores, grocery stores, gas stations, child care centers and clothing stores.

 

4. How can we improve the EITC?

The EITC is one of the hardest working tax credits that help workers with low to moderate incomes. Michigan recently quintupled its state credit, from 6% to 30%, but doing so brought to light major gaps in both the federal and state credits, notably its exclusion of young workers not raising children and Michigan residents that file with an Individual Taxation Identification Number. While it would be easier if the federal credit were expanded to include these hardworking, taxpaying Michigan residents, the state can do so on its own, following the footsteps of states that have already done so, such as California, New Mexico, Minnesota and Vermont. 

 

5. What are some resources for EITC filers?

The increase in the state EITC was retroactive to the 2022 tax year, however due to a quirk in the law, credit amounts could not be updated. EITC claimants from tax year 2022 will automatically receive a supplemental EITC check equal to the difference between the 6% credit and the 30% credit. For more information, see the Michigan Treasury’s page on the expanded EITC. Checks will be mailed to the most recent address on record, so if you’ve moved, please update your address!

Families with low to moderate incomes should also avoid using predatory tax preparers that offer fast refunds at a cost. Instead, please use trusted, high-quality Volunteer Income Tax Assistance providers for tax preparation help.

January 29, 2024 is the start of tax filing season, and the IRS and the Michigan Department of Treasury will start accepting federal and state income tax returns on this date. Taxpayers have until April 15, 2024 to file returns.