Date Requested:January 19, 2008
Time Requested:11:33 AM
Agency: State Tax Department
CBD Number: Version: Bill Number: Resolution Number:
2008R1320 Introduced HB4116
CBD Subject: EARNED INCOME TAX CREDIT
FUND(S)
General Revenue Fund
Sources of Revenue
General Fund
Legislation creates:
A New Program

Fiscal Note Summary

Effect this measure will have on costs and revenues of state government.

    The stated purpose of the bill is to provide low-income workers with a refundable state tax credit based on the federal Earned Income Tax Credits. Current law provides for a nonrefundable tax credit.
    
    As written, this bill changes the current Low-Income Family Tax Credit from a nonrefundable tax credit to a refundable tax credit and also creates a new refundable tax credit equal to 20 percent of federal Earned Income Tax Credit. The changes would apply to taxable years beginning on or after January 1, 2008. A number of the taxpayers eligible for the proposed earned income tax credit are also eligible for the Low-Income Family Tax Credit that was enacted in the November 2006 Special Session. The Low-Income Family Tax Credit provides a 50 percent credit for tax year 2007 and a 100 percent credit in subsequent years. According to our interpretation, passage of this bill would reduce General Revenue Fund collections by roughly $55.1 million per year beginning in Fiscal Year 2009. All of the projected revenue reduction would be attributable to the new refundable Earned Income Tax Credit, since the current Low-Income Family Tax Credit is computed as a percentage of a taxpayer’s tax liability and the maximum credit offset is equal to 100 percent of tax liability.
    
    Assuming that all Personal Income Tax returns claiming the new Earned Income Tax Credit would be accepted as filed, additional administrative costs for the State Tax Department would be minimal.

Fiscal Note Detail
Over-all effect
Effect of Proposal Fiscal Year
2008
Increase/Decrease
(use"-")
2009
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 0 0
Personal Services 0 0 0
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 0 0
2. Estimated Total Revenues 0 -55,100,000 -55,100,000
3. Explanation of above estimates (including long-range effect):
    The stated purpose of the bill is to provide low-income workers with a refundable state tax credit based on the federal Earned Income Tax Credits. Current law provides for a nonrefundable tax credit.
    
    Passage of this bill would change the current Low-Income Family Tax Credit from a nonrefundable tax credit to a refundable tax credit and create a new refundable tax credit equal to 20 percent of federal Earned Income Tax Credit. The changes would apply to taxable years beginning on or after January 1, 2008. A number of the taxpayers eligible for the proposed earned income tax credit are also eligible for the Low-Income Family Tax Credit that was enacted in the November 2006 Special Session. The Low-Income Family Tax Credit provides a 50 percent credit for tax year 2007 and a 100 percent credit in subsequent years. According to our interpretation, passage of this bill would reduce General Revenue Fund collections by roughly $55.1 million per year beginning in Fiscal Year 2009. All of the projected revenue reduction would be attributable to the new refundable Earned Income Tax Credit, since the current Low-Income Family Tax Credit is computed as a percentage of a taxpayer’s tax liability and the maximum credit offset is equal to 100 percent of tax liability.
    
    Assuming that all Personal Income Tax returns claiming the new Earned Income Tax Credit would be accepted as filed, additional administrative costs for the State Tax Department would be minimal.


Memorandum
Person submitting Fiscal Note:
Mark Muchow
Email Address:
kpetry@tax.state.wv.us