Baumbach Bill Would Provide Financial Relief to Thousands of Delawareans

DOVER – Low- and middle-income Delawareans could see financial relief under a new bill that would make the state’s Earned Income Tax Credit refundable.

The federal Earned Income Tax Credit (EITC) is a tax credit that reduces the amount of federal income tax a person owes, and is refundable if the tax-filer’s credit is larger than what they owe in taxes. EITC is described as the nation’s most effective anti-poverty program for working families. The federal EITC was introduced in 1975 and was designed to offset federal income taxes and social security payroll taxes while rewarding work.

About 29 states, Delaware included, have state Earned Income Tax Credits. In Delaware, the state EITC is non-refundable, reducing the state tax liability but not providing a refund to residents. Non-refundable EITC might offer tax relief to families who owe state taxes, but it does not offer any benefit to working families that have income too low to owe state income taxes. Making the EITC refundable would provide a direct financial benefit to thousands of Delaware families.

Sponsored by Rep. Paul Baumbach, House Bill 80(S) would modify Delaware’s EITC program to allow recipients to choose the most beneficial credit to be applied against their state personal income taxes. Recipients could choose between a non-refundable credit of up to 20% of the value of the corresponding federal EITC, or a refundable EITC credit of up to 4.5% of the value of the corresponding federal EITC.

“Earned Income Tax Credit is probably one of the best public policy programs that can really lift people out of poverty,” said Rep. Baumbach, D-Newark. “EITC cuts taxes for low-income families, provides incentives to work, helps stabilize income and puts families on firmer ground. We have looked for ways to do this in a fiscally prudent manner, and by allowing tax-filers to choose the best option – refundable or non-refundable – we are helping people without negatively impacting anyone. This is truly the best possible outcome for everyone.”

According to state officials, a refundable Delaware EITC would provide an increased benefit to 26,000 taxpayers, averaging $121 each. Another 17,000 who don’t meet income thresholds for personal income tax would become eligible for the EITC. Even those whose incomes do not meet the threshold for owing personal income tax contribute to regular payroll taxes, as well as various consumption taxes, such as motor fuel tax.

“Making our Earned Income Tax Credit refundable will help thousands of working families in Delaware make ends meet — and pay for childcare, education, medical bills and other expenses that we know can grow each year,” said Governor John Carney. “This legislation will help stabilize Delaware families, lift many out of poverty, and provide a real benefit for our entire economy. We are pleased to partner with Rep. Baumbach on this legislation, and we hope that all members of the General Assembly will join us in making this a priority.”

According to the Kids Count Delaware report, 71,000 Delawareans filed federal EITC claims in 2018, averaging a return of $2,401 per person. The Center on Budget and Policy Priorities estimates that in 2018, the federal EITC lifted about 5.6 million people out of poverty, including about 3 million children. The credit reduced the severity of poverty for another 16.5 million people, including 6.1 million children.

“This legislation would have a real and positive impact on thousands of Delawareans who are struggling to put food on the table and a roof over their heads,” said Sen. Trey Paradee, D-Dover, the bill’. “The current state program assists tens of thousands of low-income, working families but it ignores twice that number because they make too little. This bill will even the playing field and provide assistance to those families who need help the most.”

Under HB 80(S), the changes to Delaware’s EITC would be effective once the Department of Finance is able to complete a new integrated revenue administration system, which could be as soon as tax year 2021.

The bill is scheduled for a hearing in the House Revenue & Finance Committee on Wednesday.