A State Earned Income Tax Credit: Helping Montana's Working Families and Economy

Nov 03, 2018

By Tara Jensen

• The federal Earned Income Tax Credit (EITC) is the most effective anti-poverty program in history, lifting millions of children out of poverty.^[1] In 2017, the Legislature passed a refundable state credit on a bipartisan vote. It is set at three percent of the federal EITC, effective for the 2019 tax year. Approximately 80,000 working low-income families in Montana will benefit.^[2]

• The phased-in EITC encourages work and helps families make ends meet. A state EITC set at three percent of the federal credit offers a maximum benefit of $192.^[3] With a federal credit, this is the equivalent to a wage increase of $3.18/hour for a single mother of three.
• For most families, the EITC is a temporary safety net and incentivize work for low-income families. The majority of recipients receive the credit for one to two years to cover short-term costs like bills, groceries, and school supplies.^[4]
• Montana families with two children and two parents living in poverty have the third highest tax liability of any state in the nation. Single parent families of two children in Montana have the fourth highest tax liability.^[5] A state EITC mitigates the impact on families by reducing their income tax liabilities.
• Rural residents claim EITC benefits at a greater rate than urban residents. These additional funds go directly into the local economy to help support rural communities, families, and small businesses. In 2013, 21% of rural Montanans claimed a federal credit, compared to 18% of the entire population.^[6]
• EITC benefits stimulate the economy. The federal EITC injected $173 million into Montana’s economy in 2014.^[7]
• Administrative costs are far lower than social safety net programs. Administrative costs are less than one percent of the benefits provided. Errors are primarily due to the complexity of rules surrounding the credit, not fraud.^[8]

Number of Taxpayers Claiming EITC by County (2015)

Beaverhead	690	Madison	490
Big Horn	1,790	Meagher	150
Blaine	770	Mineral	390
Broadwater	380	Missoula	9,510
Carbon	680	Musselshell	340
Carter	70	Park	1,350
Cascade	7,190	Petroleum	40
Chouteau	390	Phillips	330
Custer	890	Pondera	490
Daniels	100	Powder River	80
Dawson	510	Powell	510
Deer Lodge	780	Prairie	80
Fallon	160	Ravalli	3,510
Fergus	940	Richland	590
Flathead	8,320	Roosevelt	1,230
Gallatin	6,350	Rosebud	930
Garfield	90	Sanders	1,010
Glacier	1,860	Sheridan	240
Golden Valley	60	Silver Bow	2,930
Granite	220	Stillwater	490
Hill	1,600	Sweet Grass	230
Jefferson	630	Teton	380
Judith Basin	110	Toole	290
Lake	3,040	Treasure	50
Lewis and Clark	4,740	Valley	600
Liberty	120	Wheatland	150
Lincoln	1,570	Wibaux	50
McCone	110	Yellowstone	11,590

  Source: Internal Revenue Service. Montana: Individual Income Tax Returns, Tax Year 2015.