Return “can be significant”
Colorado taxpayers could see an extra $77 million, likely more, in their pockets this year because of the return of the state’s earned income tax credit following a 15year absence.
“Even though it is much smaller than the federal earned income tax credit, it can be very significant,” said Chaer Robert, program manager for the family economic security program at the Colorado Center on Law and Policy.
The state credit is based on 10 percent of the federal earned income tax credit claimed. In 2013, $772 million in federal earned income credits went to 354,000 Colorado residents, according to the Denver-based Piton Foundation.
The credit’s benefits accrue the most to married households with multiple children. A married couple with three kids, for example, could get up to $624 from the state, depending on income. A qualifying single-filer with no children, by contrast, can earn $50 at most.
The credits are based on a sliding scale and subject to an income cap. A single parent with three kids must earn less than $47,747, while a married couple filing jointly with three children faces a phaseout at $53,267, according to H&R Block.
Those ceilings, however, aren’t that far removed from Colorado’s median household income, which is $58,433, according to the U.S. Census Bureau.
“It sounds low, but it is a middle-income tax credit,” said Ali Mickelson, director of tax and legislative policy at the Colorado Fiscal Institute.
That especially applies in poorer parts of the state.
Nearly a third of tax returns in Conejos and Costilla counties in 2013 claimed the federal earned income tax credit, while only 8.1 percent of returns in Pitkin County and 6.4 percent in Douglas County did so.
Mickelson estimates about eight in 10 Colorado taxpayers eligible for the federal earned income tax credit actually take it.
Several groups, from advocates for the poor to tax preparation firms, are trying to get the word out, especially with the new tax filing season opening Jan. 19.
“Most taxpayers will not know it is back unless they get some
word of it,” said Brenda Scott, an enrolled agent with Block Advisors in Littleton.
Tax filers using a software program, an online site or a preparer should get flagged about their eligibility to claim both the state and federal credits.
One group that may be missing out on the earned income tax credit are those who fail to file because they are under the income thresholds for doing so. Those doing their own returns, who aren’t up to speed on the intricacies of the tax code, also may overlook the credit.
There are also taxpayers who file a federal tax return but skip filing their state returns, Scott said. They could be at risk of foregoing a credit worth about 3 percent of income.
Supporters laud the federal earned income tax credit, which dates back to 1975, as one of the most successful programs ever devised to alleviate poverty.
In 2013, the federal credits lifted about 98,000 people in Colorado above the federal poverty line, according to the Piton Foundation.
Colorado is among 27 states offering a local version of the tax credit, but initially it was available only in years when the state issued refunds under the Taxpayer’s Bill of Rights.
It went into hiatus in 2001. But in 2013, state lawmakers made the state credit permanent whenever it triggered next — as is happening now.