Washington low-income tax credit, established in 2008, available for first time

OLYMPIA — Up to $1,200 is now available for hundreds of thousands of low-income working Washington families, thanks to a 2008 law that — 15 years later — is finally funded for the first time.

The money comes from the Working Families Tax Credit, a state program intended to provide a modest cash boost to workers near the bottom of the economic ladder who, in Washington, pay a far greater portion of their income in state taxes than the wealthy do.

Nearly 400,000 households are eligible for the newly funded tax credit, including nearly 100,000 in King County. But, because eligible families need to apply to receive it, the state’s Department of Revenue estimates that only about 40% of those eligible will receive it the first year.

The state estimates it will pay out about $230 million in refunds this year and $257 million next year.

The tax credit was signed into law by Gov. Christine Gregoire in 2008. But it was worthless. No one received a penny in tax credits. Lawmakers, facing a budget deficit, provided no funding for the tax credits, and said at the time they’d figure out that part later.

It took more than a decade to get back around to it. In 2021, flush with aid from the federal government’s emergency COVID packages, state legislators finally approved funding for the tax credits.

Lawmakers, at the time, said the popularity of the payments to individuals included in COVID stimulus packages emphasized the value of cash assistance to working families.

For Nijhia Jackson, 38, those COVID payments — three separate checks for $1,200, $600 and $1,400, passed under both the Trump and Biden administrations — were lifesavers.

Jackson, a student at Olympic College, lives in Bremerton with her husband and two young sons, and works as a cashier at the Tacoma Dome.

She used the COVID payments to pay their internet bill when her boys had to attend school remotely. She also used it for rent.

“I was able to buy school clothes and shoes for my kids to wear instead of hunting through stuff at Goodwill,” Jackson said Wednesday.

Her family will likely receive $900 from the new tax credit, which will be disbursed in the form of a rebate on sales taxes paid.

“After having those payments, I know this would be helpful,” she said. She plans to use it, again, on the internet bill, on clothes for her kids and “maybe repair my car.”

“This money can assist families in whatever their financial needs may be,” said John Ryser, acting director of the state Department of Revenue, calling it “a step in addressing intergenerational poverty and equity in the state.”

Ryser said 10,000 people applied for the tax credit on Wednesday, the first day it was available.

“Our message today is quite simple,” said Emily Vyhnanek, campaign manager for a coalition of about 50 nonprofits, unions and progressive advocacy groups that pushed to fund the tax credit. “If you, your loved ones, your neighbors … your community earned less than $60,000 last year, please don’t miss out. You could be eligible for upwards of $1,200.”

The program is modeled after the federal Earned Income Tax Credit, which gives money to low- and middle-income working families. There are 32 other states that also offer their own version of the EITC, but Washington is the only state without a state income tax to do so. That’s made administering the tax credit a little trickier.

The Department of Revenue has set up a new division and has allotted 82 full-time employees to run the program. The estimated cost to run the program is about $27 million for the upcoming two-year budget cycle.

The rebates, which range from $50 to $1,200, depending on family size and income, will come from the state’s general fund.

The push to finally fund the program in 2021 was part of an effort by state lawmakers to make the state’s tax system, long known as one of the country’s most regressive, more fair for people who make less money.

Washington doesn’t have a state income tax and relies heavily on the sales tax, which everyone, rich and poor, pays at the same rate. A 2018 study by the Institute on Taxation and Economic Policy found that the poorest families in Washington paid about 18% of their income in state and local taxes, while the richest families paid about 3% of their income in state and local taxes, the largest disparity in the country.

So, in 2021, huge bipartisan majorities in the Legislature passed the Working Families Tax Credit to try to reduce the tax burden on low-income families. At the same time, Democrats, with no Republican support, passed a capital gains tax, intended to target the wealthy, which imposes a 7% tax on profits of more than $250,000 from the sales of assets such as stocks and bonds. The state Supreme Court is currently considering the constitutionality of the capital gains tax.

Even as the tax credit just goes into effect, there are already discussions in Olympia about expanding it and making it more generous. A Republican effort led by Rep. Drew Stokesbary (House Bill 1000) would double the qualifying income, making hundreds of thousands more people, including some middle-income households, eligible. It would also double the benefit amounts for all qualifying families with at least one child.

A Democratic proposal led by Rep. My-Linh Thai (House Bill 1075) would be a more modest expansion, making the credit eligible to people 18 and over who meet income requirements. Currently, people between 18 and 25 who do not have children are ineligible, even if they meet income requirements.