FISCAL NOTE
Date Requested: March 16, 2021
Time Requested: 11:46 AM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 3386 |
Introduced |
HB3240 |
|
|---|
| CBD Subject: |
Taxation |
|---|
|
FUND(S):
General Revenue Fund
Sources of Revenue:
General Fund
Legislation creates:
Decreases Existing Revenue, Increases Existing Expenses
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
The stated purpose of this bill is to provide an earned income tax credit against the personal income tax and to establish a West Virginia Child Tax Credit.
According to our interpretation, the bill would eliminate the current nonrefundable Low-income Family Tax Credit (FTC) and replace it with a refundable West Virginia Earned Income Tax Credit (WVEITC) and a refundable West Virginia Child Tax Credit (WVCTC).
For taxable years after December 31, 2021, a West Virginia resident who is eligible for and claims the federal earned income credit is eligible for a credit equal to 25 percent of the amount of the federal earned income tax credit (EITC). Qualification for the federal EITC is not limited to those with a qualifying child; therefore, section 11-21-22b(b), which expands the WVEITC to those not eligible for the EITC solely because they do not have a qualifying child, would have no impact as currently written. Some West Virginia residents who currently benefit from the Low-income Family Tax Credit would not be eligible for the WVEITC because they have no earned income. These individuals, many of whom would be retirees, would experience a tax increase. The provisions of the bill require that the Tax Commissioner make an effort every year to inform taxpayers who may be eligible to receive the credit.
In addition, the bill establishes the West Virginia Child Tax Credit (WVCTC). Absent an effective date, this provision would first be effective for TY2022. The provision provides for a $2,000 refundable credit for each “qualified child”. A “qualified child” is one for whom the taxpayer is allowed to deduct an exemption under Section 151 of the Internal Revenue Code and who is under the age of 6 years or under the age of 18 years and has been determined to have a disability. The Federal Child Tax Credit differs in that it is for qualified dependents under 17 years of age and it is only partially refundable.
The amount of allowed West Virginia Child Tax Credit is reduced by the amount of any federal child tax credit claimed against the federal income tax for the “qualified child”. The allowable credit is further reduced for returns with federal adjusted gross income in excess of $75,000 for Married Joint filers, $50,000 for individual filers who are not married, and $37,500 for those filing Married Separate. The bill provides that for each taxable year beginning after December 31, 2021, the maximum income thresholds are to be increased to account for a cost-of-living adjustment.
Per our interpretation, this bill, if passed, would reduce General Revenue Fund collections by at least $100 million in FY2023 and in subsequent fiscal years.
The American Rescue Plan Act of 2021, which was signed into law on March 11, 2021, temporarily expands the eligibility and value of Earned Income Tax Credit and the Child Tax Credit for tax year 2021. If Congress continues the temporary Earned Income Tax Credit provisions into future years, it would increase the revenue loss of the proposed West Virginia Earned Income Credit by as much as $15.8 million per year. In addition, the West Virginia credit would be tied into the Federal credit and West Virginia would automatically be subject to any future changes in the Federal credit. If Congress continues the temporary Child Tax Credit provisions into future years, it would potentially eliminate most if not all of the revenue impact of the proposed West Virginia Child Tax Credit.
Additional administrative costs to the State Tax Department would be $184,200 in FY2022 and $160,000 in subsequent fiscal years.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2021
Increase/Decrease
(use"-") |
2022
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
184,000 |
160,000 |
| Personal Services |
0 |
160,000 |
160,000 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
4,200 |
0 |
| Other |
0 |
20,000 |
0 |
| 2. Estimated Total Revenues |
0 |
0 |
-105,000,000 |
Explanation of above estimates (including long-range effect):
According to our interpretation, the bill would eliminate the current nonrefundable Low-income Family Tax Credit (FTC) and replace it with a refundable West Virginia Earned Income Tax Credit (WVEITC) and a refundable West Virginia Child Tax Credit (WVCTC).
For taxable years after December 31, 2021, a West Virginia resident who is eligible for and claims the federal earned income credit is eligible for a credit equal to 25 percent of the amount of the federal earned income tax credit (EITC). Qualification for the federal EITC is not limited to those with a qualifying child; therefore, section 11-21-22b(b), which expands the WVEITC to those not eligible for the EITC solely because they do not have a qualifying child, would have no impact as currently written. Some West Virginia residents who currently benefit from the Low-income Family Tax Credit would not be eligible for the WVEITC because they have no earned income. These individuals, many of whom would be retirees, would experience a tax increase. The provisions of the bill require that the Tax Commissioner make an effort every year to inform taxpayers who may be eligible to receive the credit.
In addition, the bill establishes the West Virginia Child Tax Credit (WVCTC). Absent an effective date, this provision would first be effective for TY2022. The provision provides for a $2,000 refundable credit for each “qualified child”. A “qualified child” is one for whom the taxpayer is allowed to deduct an exemption under Section 151 of the Internal Revenue Code and who is under the age of 6 years or under the age of 18 years and has been determined to have a disability. The Federal Child Tax Credit differs in that it is for qualified dependents under 17 years of age and it is only partially refundable.
The amount of allowed West Virginia Child Tax Credit is reduced by the amount of any federal child tax credit claimed against the federal income tax for the “qualified child”. The allowable credit is further reduced for returns with federal adjusted gross income in excess of $75,000 for Married Joint filers, $50,000 for individual filers who are not married, and $37,500 for those filing Married Separate. The bill provides that for each taxable year beginning after December 31, 2021, the maximum income thresholds are to be increased to account for a cost-of-living adjustment.
Per our interpretation, this bill, if passed, would reduce General Revenue Fund collections by at least $100 million in FY2023 and in subsequent fiscal years.
The American Rescue Plan Act of 2021, which was signed into law on March 11, 2021, temporarily expands the eligibility and value of Earned Income Tax Credit and the Child Tax Credit for tax year 2021. If Congress continues the temporary Earned Income Tax Credit provisions into future years, it would increase the revenue loss of the proposed West Virginia Earned Income Credit by as much as $15.8 million per year. In addition, the West Virginia credit would be tied into the Federal credit and West Virginia would automatically be subject to any future changes in the Federal credit. If Congress continues the temporary Child Tax Credit provisions into future years, it would potentially eliminate most if not all of the revenue impact of the proposed West Virginia Child Tax Credit.
Additional administrative costs to the State Tax Department would be $184,200 in FY2022 and $160,000 in subsequent fiscal years.
Memorandum
The stated purpose of this bill is to provide an earned income tax credit against the personal income tax and to establish a West Virginia Child Tax Credit.
The credit is very complex and lacks the provisions necessary to administer it. Credits typically have application and approval procedures, deadlines, rulemaking authority for the Tax Commissioner, sunset provisions, record keeping requirements and reporting requirements to the Legislature. There are some key terms that are not defined, which would give rise to litigation or exploitation. These include “make an effort” and “through appropriate assessment.”
Section 22 appears to have an error in the heading, as this is not the section establishing the Child Tax Credit. Section 22c refers to “maximum income thresholds” in subsections (b) and (e); but neither of those subsections contain such a threshold.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov