Introducing the 2008 Michigan
Earned Income Tax Credit
Scott B. Darragh
Office of Revenue and Tax Analysis
Michigan Department of Treasury
EITC Learning Exchange
June 13, 2008
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Any opinions expressed today should be
viewed as strictly my own, and may not
represent the views of the State Treasurer
or the Michigan Department of Treasury.
Life as an Economist
An economist is someone who gets rich explaining
to others why they are poor. (Source unknown)
 A woman hears from her doctor that she only has
half a year to live. The doctor advises her to marry
an economist. The woman asks, "Will this cure my
illness?" "No," the doctor answers, "but the six
months will seem like a lifetime!"
--Taken from Jeff Thredgold, On the One Hand: The
Economist's Joke Book.
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Federal and State EITCs
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The federal EITC will provide approximately
$44.7 billion in benefits to recipients in 2008
(2009 Budget of the U.S.).
The number of states with EITCs has grown
from 7 in 1994 to 22 in 2008 (CBPP).
State EITCs typically are structured to mirror
federal eligibility and equal a percentage of
the federal credit (piggyback credits).
Brief Recent History of EITC
The last major expansion of federal EITC
occurred in 1993.
“Last year, we fought for, and won, a major
expansion of the EITC…. This credit will help
millions of workers and is a cornerstone of
our effort to reform the welfare system and
make work pay.”
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President Clinton, memorandum dated March 9, 1994
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Recent History (cont.)
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Combined with welfare reform enacted in
1996, the EITC reflects a policy shift that ties
public assistance to work.
Federal legislation enacted in 1997, 2001,
and 2004 has:
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Modified the rules for qualifying children;
reduced marriage penalties in the EITC; and
sought to improve compliance with EITC
requirements.
EITC vs. AFDC/TANF
$50.0
billions
$40.0
$30.0
$20.0
$10.0
$0.0
0
9
19
2
9
19
4
9
19
6
9
19
8
9
19
0
0
20
2
0
20
Family Support Payments/TANF
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Source: Budget for Fiscal Year 2009, Historical Tables
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0
20
6
0
20
EITC - Outlays
Poverty Rates: 1975 - 2006
40.0%
30.0%
20.0%
10.0%
0.0%
5
7
19
8
7
19
1
8
19
4
8
19
7
8
19
All Families
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Source: U.S. Census Bureau
0
9
19
3
9
19
6
9
19
9
9
19
2
0
20
5
0
20
Female Householder
Impact of EITC on Poverty
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
Female
Female H/h
Female H/h
Householder with Child <18 with Child <6
Official Poverty Rate
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Poverty after EITC
Source: U.S. Census Bureau data for 2006
Federal EITC Payments in
Michigan
$1,400
$1,200
millions
$1,000
$800
$600
$400
$200
$0
1987 1989 1991 1993 1995 1997 1999 2001 2003 2005
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Source: Statistics of Income, Internal Revenue Service
Annual Growth in EITC Payments
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
Federal Payments
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Michigan Payments
Source: Statistics of Income, Internal Revenue Service
Errors in Claiming EITC
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Errors associated with EITC administration have generated a
lot of attention.
Over-claiming EITC
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Under-claiming EITC
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IRS estimates approximately 23-28% paid in error, although the
estimates are a few years old
Errors related to qualified child, filing status, and income
Changes have been implemented at federal level to potentially
address some of these problems
GAO estimates approximately 25% don’t claim the credit,
representing approximately 11% of total credits
Under-claim highest for filers without children or more than 2
qualifying children
Michigan EITC
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Public Act 372 of 2006 created a refundable
Michigan EITC.
Effective for tax years beginning after 2007.
Michigan EITC is a piggyback credit equal to:
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10% of the federal credit for which the taxpayer is
eligible in 2008; and
20% of the federal credit for which the taxpayer is
eligible after 2008.
Who is Eligible?
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Must be a Michigan taxpayer
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Must be eligible for the federal EITC
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Subject to the Michigan income tax
Not necessarily a resident
Must have a Social Security Number
Cannot be married filing a separate return
Meet income/child criteria
Cannot be blocked from claiming the federal credit due to
negligence or suspected fraud (I.R.C. Sec. 32(k)).
Economic Impact of the New
Michigan EITC
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The new Michigan EITC will magnify the impact of
the federal EITC.
Low-income working families now receive a wage
subsidy of up to 44% in 2008.
Michigan families receiving the maximum EITC will
now be eligible for a combined federal and state
credit of $3,209 with one qualifying child or $5,306
with more than one qualifying child.
Greater impact on income for eligible families than
on labor force participation and employment.
Estimated Cost of Michigan EITC
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Michigan residents received $1.33 billion in
federal EITC payments for tax year 2006.
However, it is likely that less than 100% of
the eligible claimants will actually claim the
Michigan EITC (CBPP).
Current estimate is that Michigan residents
will receive $133.6 million for 2008 and
$298.9 million for 2009.
How to Claim the Michigan EITC
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Important to remember that Treasury’s plans
for administering the Michigan EITC are
tentative.
We expect to receive approximately 750,000
EITC claims for tax year 2008.
If similar to the federal EITC, between 80%90% of the credit claims will be filed
electronically.
Claiming the EITC (cont.)
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To claim the Michigan EITC a taxpayer will
likely need to complete a form that
resembles the federal Schedule EIC to
report qualifying children, earned income,
and the amount of federal EITC claimed.
When returns are filed electronically, this
reporting will be seamless.
For most paper returns, this will be
straightforward as well.
Claiming the EITC (cont.)
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The process in Michigan will be similar to the
process in many other states.
Watch for more information in the Michigan 1040
booklet next January and on the Treasury Website
(www.michigan.gov/treasury).
Treasury will work with commercial tax preparers
and software developers as part of our annual forms
development process and we would expect that the
Michigan EITC will be included in their programs.
Proposed Legislation
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Senate Bill 662, introduced last summer,
would make the Michigan EITC conditional
on a $250 million balance in the Rainy Day
Fund.
House Bill 4645, passed by the House in
February, would regulate the refund
anticipation loan process.
Conclusion
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“I think we agree, the past is over.”
Governor George W. Bush – May 10, 2000
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And so is my presentation. Any questions?