Budget Briefing: Half a Million Working Families Continue to Feel Effect of 2010 Tax Increase

This is the second in a series of in-depth examinations of major issues in the recently enacted FY 2014 budget. Click here for the first.

For the fourth year in a row, half a million New Jersey working families will receive less money from the Earned Income Tax Credit than they received in April 2010. Some families will lose as much as $330 and over the four years will have lost more than $1,300. The average family has lost $124 each year, for a cumulative total of nearly $500, from this common-sense tax credit that rewards hardworking but low-income New Jerseyans.

What’s worse, almost 18 percent of EITC filers who applied for their refunds in April 2012 for the tax year 2011 have yet to receive their payments because of the treasury’s fraud screening process aimed exclusively at low-income working families. The result: 98,812 families are yet to receive about $53.5 million in sorely needed payments that were due over a year ago.

Democrats have tried three times to restore the full 25 percent EITC to undo the tax increase that they and the governor imposed on these families in 2010. But the governor has conditionally vetoed the measure twice (in addition to one outright veto), arguing that EITC restoration must be part of a broader tax cut.

This year, in the “get-out-of-Trenton-early” budget deal, the legislative leadership took EITC restoration off the table. Effectively, half a million working families are being held hostage to political games as the governor and legislative majority dance around proposals for unaffordable tax cuts. It was the Democratic majority that supplied the votes to enact the EITC tax increase in 2010. Both the governor and legislative leadership say they would like to restore the EITC, but apparently not enough to actually do so.

Meanwhile, the Office of Legislative Services (OLS) has disclosed the 2012 launch of a fraud screening process by the treasury aimed exclusively, it appears, at lower-income working families. As of March 2013, 98,812 EITC applicants were yet to be paid for a 2011 tax credit. That is almost 18 percent of all EITC claimants who are still waiting for a refund that should have been paid in the spring of 2012. So far, 453,000 of 560,000 applicants have been paid; 7,238 or 1.5 percent have been denied $5.3 million.

The Division of Taxation explains that filers were required to supply additional information and either have not provided it or the it’s is “still under review.” The division further stated that they anticipated a very low number of the pending claims would actually be paid even though only 1.5 percent of earlier claims were denied. What “additional information” beyond the W-2 form do families earning low wages have to file? Capital gains on credit default obligations?

If treasury is correct, the number of New Jersey filers receiving a federal EITC who will also receive a state EITC will decrease from 91 percent in tax year 2010 to 80 percent in tax year 2011, according to OLS. This would be the lowest level of participation since the first years of the program about a decade ago.

This close attention to the tax returns of filers who owe no New Jersey taxes is curious. The potential savings from reviewing these EITC filings is miniscule compared to what might be realized from equally close inspection of the rest of the state’s nearly 5 million tax returns, which generated over $12 billion.

Senate Majority Leader Weinberg’s call for committee hearings on the delay in processing refunds that were due in April should be expanded to include the massive withholding of EITC payments that were due in April 2012.

One Comment

  1. The over scrutinization of the tax returns of low income families claiming NJEITC is ridiculous when if the same scrutiny was placed on wealthy taxpayers it would be far more fruitful monetarily. The shell game of putting off paying tax refunds to persons who qualify for EITC is discrimination against working poor. The Homestead Tax Rebates are also victim of this shell game of putting off financial obligations of the state…….borrowing from Peter to pay Paul is not a way of balancing the budget…it’s just a way of making it look like it’s being balanced. It’s no different that when the state raided the NJ Pension Fund to balance the budget.

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