Low-income families in New Mexico may eventually see a little more money in their pockets if a piece of legislation that proposes to increase to the state’s earned income tax credit for 2013 is passed.
The New Mexico Working Families Tax Credit, first enacted in 2007, gives taxpayers who meet income qualifications a percentage of the federal Earned Income Tax Credit.
Currently, that percentage is set at 10 percent; a bill co-sponsored by Rep. Ed Sandoval and Sen. Jacob Candelaria proposes to increase the tax credit to 15 percent.
Both the federal and state credits apply only to working families below a certain income threshold. The amount of the tax credit depends on the size of the family.
The increased dollar amount families with children would receive if the legislation is passed ranges from about $150 to almost $300.
A family of three earning less than $45,060 a year currently qualifies for a maximum $5,891 federal Earned Income Tax Credit and a maximum $589.10 New Mexico state credit. If the legislation to increase the percentage is passed, the maximum state credit for that income bracket would grow by almost $300, to a refund of $883.65.
The increase would be effective for tax year 2013, meaning families would get the refund in 2014.
The last increase to the tax credit, from 8 percent to 10 percent, was in 2008.
The total cost to the state for percentage increases would be almost $26,000 in 2014, according to a legislative fiscal impact report.
Twenty-five states currently have earned income tax credits, according to the Center on Budget and Policy Priorities.
In an opinion piece published recently in the Albuquerque Journal, Sandoval writes that “raising New Mexico’s Working Families Tax Credit … would assist those New Mexico families who are struggling the most, make our tax system fairer and be an important first step toward reducing income inequality in our state.”
New Mexico leads the nation in income disparity, according to a November report released by the Center on Budget and Policy Priorities, a research and analysis organization that advocates for low-income families.
The gap between the poorest New Mexicans and the wealthiest has been growing since the 1970s, according to the report.
The report states that “the richest 5 percent of households have average incomes 16.8 times as large as the bottom 20 percent of households.”
The poorest 20 percent in New Mexico earn an average of $16,300 a year, while the wealthiest top five percent bring in an average $273,500 annually, according to the report.
The report attributes the growth in wage inequality to increasing income gaps between the highest paid workers in technology fields with the lowest earners in the service sectors.
To see if you qualify for a federal earned income tax credit, visit irs.gov/Individuals/Qualifying-Child-Rules.