In the recently signed state budget, lawmakers expanded eligibility for the New Jersey Earned Income Tax Credit (EITC) to young workers and seniors without qualifying dependents. This expansion of the EITC, a powerful tool for increasing the after-tax earnings of low- and moderate-income workers, will help thousands of residents cover the costs of basic needs. Increasing household spending power across New Jersey will also provide a boost to state and local economies as EITC benefits are often spent immediately and locally.
Workers between the ages of 18 and 20 and over 65 who do not claim dependent children will now qualify for the state EITC for the first time. This eligibility change builds upon an increase in the credit amount and expansion of eligibility in 2020, when lawmakers raised the New Jersey EITC to 40 percent of the federal credit and decreased the minimum age requirement for workers without qualifying children from 25 to 21, decoupling New Jersey’s state EITC from federal eligibility requirements for the first time.
These improvements will be supplemented by a new, temporary expansion to the federal tax credit. The American Rescue Plan Act (ARP) temporarily reduces the minimum eligibility age from 25 to 19 and eliminates the upper age limit (currently set at 65) for tax year 2021 only. The ARP also temporarily raises the maximum credit amount for workers without children from approximately $540 to approximately $1,500 and increases the income cap from approximately $16,000 to $21,000. In the absence of a permanent federal EITC expansion, New Jersey’s EITC eligibility expansion is an important step toward addressing inequities in the state version of the credit. State lawmakers can further strengthen the EITC for workers without qualifying children by increasing the income cap and credit amount for the state version of the credit.
Unfortunately, workers without qualifying children are not the only group of workers who are penalized by an inequitable EITC. Workers who use an Independent Taxpayer Identification Number (ITIN) to file taxes are ineligible for any EITC. By including ITIN filers in the state version of the credit, New Jersey can remove another discriminatory barrier and expand access to the credit. Several other states, including California, Maryland, Colorado, and New Mexico have already enacted similar expansions.
Strengthening the state EITC is an important step toward promoting equity in the tax code, but more must be done as the credit provides a small benefit, especially for workers who are not raising children at home, and does not reach everyone facing financial hardship. Achieving economic equity in New Jersey will require more robust investments in a broad range of programs — including baby bonds, reparations, and guaranteed income — that can meaningfully address racial and economic inequities both during and beyond the current crisis.