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ARIZONA STATE SENATE
Fifty-Fifth Legislature, First Regular Session
tax credit; earned income
Purpose
Establishes the Arizona Earned Income Tax Credit (Arizona EITC), allowed against individual income tax liability beginning in Taxable Year (TY) 2021 for an individual who qualifies for the Federal EITC.
Background
The Federal EITC grants low to moderate income individuals and families a credit against income tax liability. The amount of the credit depends on a taxpayer's marital status, adjusted gross income and the number of qualified children. If a taxpayer's adjusted gross income qualifies for the Federal EITC the maximum credit for TY 2021 is: 1) $543 with no qualifying children; 2) $3,618 with one qualifying child; 3) $5,980 with two qualifying children; or 4) $6,728 with three or more qualifying children. After a certain adjusted gross income threshold is met the amount of the Federal EITC will decrease linearly (26 U.S. Code ยง 32).
|
Children Claimed |
Maximum Adjusted Gross Income (Single or Head of Household) |
Maximum Adjusted Gross Income (Married) |
|
0 |
$15,980 |
$21,920 |
|
1 |
$42,158 |
$48,108 |
|
2 |
$47,915 |
$53,865 |
|
3 or more |
$51,464 |
$57,414 |
Individual income tax is levied on Arizona residents' taxable income using a graduated rate structure, which currently ranges between 2.59 percent and 4.5 percent and is based on a taxpayer's income level. Statute authorizes certain tax credits, which provide a reduction of a taxpayer's income tax liability (JLBC Tax Handbook, 2020).
If the creation of the Arizona EITC results in claims against income tax liability, there may be a fiscal impact to the state General Fund.
Provisions
Arizona EITC
(Retroactive to TYs beginning January 1, 2021)
1. Establishes the Arizona EITC allowed against individual income tax liability for an individual who qualifies for the federal EITC.
2. Sets the amount of the Arizona EITC at five percent of the amount of the Federal EITC allowed to the taxpayer for the TY.
3. Requires the Arizona Department of Revenue to make suitable claim forms available with the individual income tax returns.
4. Prohibits a claim for the Arizona EITC unless the claim is filed with a claimant's tax return, except a claimant who certifies that they have no income tax liability and whose income is lower than the standard deduction.
5. Limits the Arizona EITC to one claimant per household per TY.
6. Requires the Joint Legislative Income Tax Credit Review Committee to review the Arizona EITC in years ending in 1 and 6.
7. Requires any credit in excess of owed taxes be refunded to the claimant.
Liability Setoff Program
8. Clarifies which tax credits are subject to the liability setoff program.
Miscellaneous
9. Makes technical changes.
10. Contains a purpose statement.
11. Becomes effective on the general effective date, with retroactive provisions as noted.
Prepared by Senate Research
January 25, 2021
MG/FDR/gs