Working families tax credit

Relief for 350,000 working Washingtonians

Washington has the most regressive tax structure in the nation.

We’re one of the only states without an income tax, and we have one of the highest sales tax rates in the nation. As a result, those who make $20,000 a year pay over four times more in taxes proportionate to their incomes than those who earn over $200,000 per year.

Senate Democrats have offered legislation to provide a real progressive remedy to this imbalance – the first progressive tax effort in the state since they reinstated the Supreme Court-invalidated inheritance tax in 2005 to help ensure the state’s education system is adequately funded.

Senate Bill 6809 follows the model used in 23 other states and provide eligible families a 10 percent state payment of their federal Earned Income Tax Credit (EITC).

The EITC is an option for low-income people to reduce or eliminate their income tax payments. A family of four with an income of just under $40,000 a year is eligible. In 2002, it lifted 4.4 million people above the poverty line.

To see who qualifies for the federal EITC, click here.

In 2004, the EITC refunded $600 million to 350,000 working Washington residents, with refunds averaging about $1,700 per family.

To see refund claims and amounts broken down by legislative district, click here.

If SB 6809 is enacted, Washington would become the only state in the nation without an income tax to provide a state percentage payment of the federal EITC. The percentage would function as refund on a family’s paid sales taxes.

It would offer real relief to those who not only pay a great portion of their income in taxes, but who also pay a higher sales tax rate because they can't deduct their state sales tax payments on their federal tax forms.

Administratively, the state Department of Revenue (DOR) would obtain EITC recipient data from the IRS, and send postcards to EITC claimants. Families would return their postcard to DOR or apply for their tax credit online, and then receive a check in the mail.

Because there is no current system in place to administer the program, there would be only a minimal fiscal impact from SB 6809 this biennium as the program is set up. 

The bill would authorize the beginning of the administrative process, setting up the program up with a 5 percent (or minimum twenty-five dollar) payment for FY 2010 and 2011, then stepping up to a 10 percent (or minimum fifty-dollar) payment after that. 

Combining the 10 percent match proposed in the bill with the EITC itself could raise a working family’s earnings by up to 31 percent. Depending on family size, the proposal could eventually provide full-time minimum-wage earners a check from the state for up to $470.

The program could also be expanded in subsequent years, either at the federal or state level, or both.

Senate Democrats believe it’s time to pass a tax cut for those who need it most.