After years of effort, Virginia is giving lower-income workers a major tax break
‘It has an outsized impact on the families that need the most help’
Mercedes Benson, a single mom who makes a little under $50,000 a year running a coffee shop in Richmond, doesn’t usually expect things to go her way during tax season.
On her state income taxes, Benson said she usually owes money or gets a tiny refund that doesn’t go very far. But as she tries to keep up with credit card bills and higher costs for gas and groceries, Benson, 40, says a recent change to state tax policy has given her hope she’ll be getting a little more help next April.
“The state doesn’t let up on us. We’re always paying something,” Benson said. “I’m just happy to get some kind of break.”
Heading into this year’s General Assembly session, the state was flush with revenue, Republican Gov. Glenn Youngkin was eager to deliver on his promises for big tax cuts, and Democrats still held enough power to insist on at least some of their priorities. Those factors combined to bring about a policy change years in the making: An earned-income tax credit (EITC) that’s now partially refundable.
Making Virginia’s version of the credit refundable, a change done through the new state budget, means that instead of only reducing how much a low-income tax filer owes without giving money back, it can now lead to a bigger refund — or create a refund that otherwise wouldn’t exist.
Proponents say the change will mean hundreds of dollars going back into the pockets of roughly 600,000 working-class earners eligible for the credit next tax season, many of whom don’t make enough to owe state income taxes but pay sales taxes and contribute to state revenues in other ways. The exact size of the credit depends on a tax filer’s income and how many children they have. For the 2022 tax year, maximum credit amounts range from $560 for filers with no children to $6,935 for filers with three or more children, according to the IRS.
Virginia made 15% of that credit refundable on state tax returns, joining at least 26 other states and the District of Columbia with similar policies, according to the National Conference of State Legislatures.
Ashley Kenneth, president and CEO of the progressive Commonwealth Institute for Fiscal Analysis, which has advocated for the change for 15 years, said the strengthened credit will be particularly helpful to Black and Latino workers, who are more likely to have lower incomes that cause them to miss out on other forms of tax relief the General Assembly approved.
“It has an outsized impact on the families that need the most help,” Kenneth said. She added that help for those on the lower end will bring some balance to a “regressive” state system that taxes all income above $17,000 at the same rate.
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