Maine’s EITC Becomes Refundable

By Lauren Pescatore

And then there were three.

Maine has officially become the 23rd state with a refundable Earned Income Tax Credit (EITC) – leaving behind DelawareOhio and Virginia as the only states that offer the credit with no refundable portion. Maine’s recent budget deal makes the state’s EITC fully refundable, increasing after-tax earnings for 100,000 working Mainers and their families.

Refundable EITCs allow low-income working families to receive the credit in full, regardless of their tax liability. By contrast, nonrefundable credits prevent workers from collecting any portion of the EITC that exceeds the amount they owe in income taxes, which means the lowest earners rarely receive any benefit. The Maine Center for Economic Policy reports that of the 102,000 Mainers who claimed the refundable federal EITC in 2013, only 20,000 were able to claim the nonrefundable state credit. Maine’s newly refundable EITC will now allow thousands of these families to collect both the state and federal credit, helping them keep more of the money they’ve earned.

While state advocates and policy groups had also pushed this session for an increase in Maine’s EITC from 5 to 20 percent of the federal credit – a measure that wasn’t included in the final budget deal – they applauded the EITC’s new refundability as a long-awaited step forward. Making Maine’s EITC refundable provides an additional incentive for low-income workers in the state to file an income tax return and build financial security.