Expand Economic Opportunity and Reduce Child Poverty

Raise Income Tax Thresholds

States seeking to ensure their tax structure encourages and rewards work can reduce the tax burden on families with incomes near the federal poverty level (FPL).[i] A key method for doing so is to raise the income threshold at which family income becomes subject to the state income tax. This policy also reduces the tax burden for other low-wage families by eliminating the tax liability for the portion of their income that falls below the income tax threshold.

What Can Policymakers Do?

· Set a “no tax floor” which protects poor families from income taxation, but does not change other aspects of the tax code.

· Increase personal exemptions or standard deductions which reduce the amount of taxation for all taxpayers.

· Enact tax relief targeted toward low-wage familes, such as outreach for, or state versions of, the Earned Income Tax Credit or Child and Dependent Care Tax Credit or Child Tax Credit.

Eliminating state income taxes on working families with poverty-level incomes gives a boost in take-home pay that helps offset child care and transportation costs that families incur as they strive to become economically self-sufficient. [ii]