A State Earned Income Tax Credit in Nebraska:
Help Hard-Working Families Become Self-Sufficient
LB968 (formerly LB810), in part, would provide a refundable credit for eligible families equal to
eight percent (8%) of the federal earned income tax credit. A State Earned Income Tax Credit
(EITC) would provide crucial tax relief to hard-working, low-income families, helping them
close the gap between what they earn and what they need to make ends meet. A state EITC
also returns dollars to families who put the money back into our economy.
Eighteen states plus the District of Columbia have enacted state EITCs, including Kansas, Oklahoma,
Iowa, Minnesota, Wisconsin, Illinois, and Indiana. It’s time for Nebraska to follow their lead.
The EITC makes a significant difference for hard-working families. The federal EITC is the single
most effective policy that lifts low-income working families out of poverty. The National Center for
Children in Poverty found that the federal EITC reduces child poverty among young children by nearly
25 percent. A state EITC builds on the benefits of the federal EITC.
The EITC stimulates the local economy. Working families use the EITC refund to pay off debt,
finance transportation to work, invest in education, and buy basic necessities. Dollars spent in the
local community provide an economic stimulus to the state, particularly in rural communities.
The EITC provides a vehicle to build assets. Working families can take the opportunity to save the
EITC refund as a first step to build assets and financial security.
Who would benefit? Working families with incomes of up to $31,030 with one child and up to
$35,263 with two+ children, qualify for the federal EITC, the same threshold for a state EITC. Most
beneficiary families (74%) earn less than $20,000 per year. In Nebraska, 104,000 households filed
for the federal EITC collecting more than $170 million 2005. The EITC in Nebraska is collected
equally in urban and rural areas with approximately 13 percent of urban and rural filers claiming the
federal credit.
How would a state EITC work in Nebraska? A state EITC piggybacks on the federal EITC. An
eight percent refundable state EITC amounts to eight percent of the amount of the individual’s federal
EITC refund. A “refundable” EITC is designed to offset the tax burden on low-income working
families, such as sales taxes and payroll taxes. An addition of one line to the state income tax form is
all that is needed to implement the state EITC.
How much would be returned to Nebraska families? In Nebraska, federal EITC refunds amount to
approximately $170 million. An eight percent refundable state ETIC would return approximately $13.6
million annually to working families. These dollars would be spent in communities, stimulating local -and ultimately, the state -- economies.
The federal and state EITC have a long history of bi-partisan support. Enacted in 1975 under
President Ford, and expanded under Presidents Reagan, Bush and Clinton, the federal EITC is
supported by policymakers on both sides of the aisle. At the state level, EITCs have been enacted
under both Democratic and Republican governors.
Information Provided by
Voices for Children
7521 Main Street, Suite 103
Omaha, Nebraska 68127