States across the country are tackling an equity issue in the tax code by breaking from federal eligibility standards for their state Earned Income Tax Credits (EITCs). Specifically, states are taking it upon themselves to end the exclusion of taxpayers who file their taxes with an Individual Taxpayer Identification Number (ITIN). ITINs are personal tax processing numbers issued by the Internal Revenue Service (IRS) to individuals who are not eligible for a Social Security number. They are primarily issued to undocumented immigrants, although they are also issued to certain lawfully present immigrants. Millions of people pay taxes with ITINs every year. Together ITIN-filers paid $23.6 billion in taxes in 2015. In less than a year, five states have successfully passed legislation to end the exclusion of these tax filers from their EITCs.
California and Colorado made history in 2020 when they became the first states to make this credit available to their undocumented residents. As California Governor Gavin Newsom stated, “These Californians are taxpayers and should be treated like taxpayers, eligible for the same credits, and pay the same tax rates.” Thus far in 2021, Maryland, New Mexico, and Washington state have successfully passed legislation to include ITIN-filers in their state credits. At this writing, Minnesota, Oregon, Massachusetts, New York, Illinois, and New Jersey have bills pending in their legislatures to do the same, and advocates report that similar bills will soon be introduced in additional states.
This new wave of state activism has developed amid an economic crisis that has pushed many families across the country to the brink of poverty and a public health crisis that has elevated the importance of essential workers and of solidarity in fighting the spread of the disease. Almost three-quarters of undocumented workers are classified as “essential,” and they make up a disproportionate share of workers whose sectors have been hit the hardest in the COVID-19 crisis. Yet they lack access to much of the social safety net accessible to citizens. Low-income and marginalized communities are typically disproportionately affected by crises, but the COVID-19 recession has caused an exceptional divergence in well-being.
“Crisis exacerbates inequality, and in a time of massive hardship and a reckoning with systems that are too often discriminatory, it becomes even more critical for decision-makers to take actions that address structural inequity,” said Colorado Senator Julie Gonzales, a co-sponsor of the EITC measure in that state. California Assemblymember Lorena Gonzalez said, “We know that immigrant workers have been disproportionately devastated by our current public health and economic crises. These tax-paying, essential workers continue to be shamefully and systematically left out of federal relief efforts.”
The impact of this policy change will be significant. As explained by the Deputy Director of New Mexico Voices for Children, Amber Wallin, “These tax changes are a huge win for New Mexico families, especially working families with children. They will improve equity, reduce child poverty, and help essential workers meet their basic needs, all while giving a big boost to our economy because families spend these credits quickly and locally.” Wallin’s statements are backed up by ample research. The EITC has been proven to improve educational outcomes in young children, raise college enrollment rates, increase workforce participation, increase recipients’ future earnings, improve health outcomes including life expectancy, decrease the incidence of low birth weight in newborns, and stimulate local economies by putting money in the pockets of consumers with immediate needs.
Thirty states, the District of Columbia, Puerto Rico, Guam, and some cities have their own version of the federal EITC, most of which provide a percentage of the federal credit. The EITC is targeted for working, low-income families and is a critical element of the social safety net. It was created in 1975 at the federal level. Rhode Island was the first state to enact a state-level EITC in 1986. The credit amount is determined as a percentage of the filers’ earnings and is heavily impacted by family size. The EITC has been long recognized by both Democrats and Republicans as a highly effective anti-poverty measure, specifically anti-child poverty.
Out of the six states with legislation pending to end the exclusion of ITIN filers, the bills in Oregon and Massachusetts are perhaps the most notable. Bill HB 2819 in Oregon would include ITIN filers in the state EITC, and would additionally compensate ITIN filers for the credit amount that they are being denied by the federal government. Advocates in Oregon have framed this latter provision as an equity feature, arguing that the state must take responsibility for discrimination at the federal level. The bill pending in Massachusetts, S.1852, would build on the EITC by establishing a Guaranteed Minimum Income for all residents in the state.
Together, the five states that have passed legislation thus far have opened eligibility to approximately 914,000 families for their state credits, according to estimates by the Institute for Tax and Economic Policy. The status of state efforts to end the exclusion of ITIN filers in state EITCs is cataloged below, with updates current as of May 1, 2021.
*Institute on Taxation and Economic Policy analysis, March 2020 using SPEC Returns Database for the ITIN market segment for tax year 2015 and ITEP’s Microsimulation Tax Model.
More governors have been coming out in support of extending the state EITC to ITIN-filers. However, governor support is not always necessary. Maryland’s governor had opposed the inclusion of ITIN filers, but it passed the legislature with enough votes to overturn a veto. As stated by Maryland House of Delegates Julie Palakovich Carr, “A Marylander is a Marylander no matter what type of tax ID number they have.”
Campaigns on behalf of extension have varied in rhetoric and tactics. The campaigns in Washington, California, and New Mexico, for example, were supported by large and diverse coalitions that worked together for years to fight for this policy change. In some states, provisions to extend the EITC to ITIN filers have simply been one element within much larger tax bills, while in others expansion of EITC eligibility has been a standalone measure. In Washington state, the bill passed with overwhelming support from both parties, while other states face partisan divides. Some campaigns have been focused on the racial equity or immigrant-rights aspects of the issue, while others have tried to avoid these frames altogether.
Time will tell how many of these bills will pass in the 2021 legislative sessions. Yet it is clear that a growing number of states recognize the value of including all residents in recovery efforts and safety nets. Denying eligibility or impeding access to the EITC for millions of taxpaying noncitizens undermines the efficacy of US anti-poverty initiatives, and states are taking the lead to enact change.