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Many states are expanding this ‘proven poverty-fighting tool’ to help low-income families

Yahoo Finance’s Denitsa Tsekova joins the Yahoo Finance Live panel to discuss the latest news on the Earned Income Tax Credit.

Video Transcript

[MUSIC PLAYING]

ZACK GUZMAN: Well, in the, pandemic we've already seen one big program at both the state and federal level to help low and middle-income families. That would be earned income tax credits. President Biden did so earlier with his plan here to help families. And now we're seeing more states follow suit with individual earned income tax credits that have been rolled out at the state level.

For more on that, I want to bring I'm Yahoo Finance's Denitsa Tsekova in Your Money this time around. And Denitsa, what are we seeing?

DENITSA TSEKOVA: So yeah, exactly, we've already seen some of the effects of those federal state credits. But there are actually many states joining the movement. Just this year, 10 states have increased or enacted at the state level earned income tax credit. That's only one of the tax credits that the Biden administration expanded. We've also talked a lot about the CDC.

But this one in particular has been increased in 10 states. Also the District of Columbia and Delaware are also joining the movement. So later this year, we may see even more states increasing their credits. The expansion of those states credits' could help over 1 million low and middle-income families. Those credits are targeted when it comes to income distribution. So it's really the lower part of the income ladder that is benefiting from them.

The changes are different. Some states are seeing an increase in the amount of the credit. Other states are allowing more people to be eligible for the credit. And then there are other states who are enacting the credit for the first time, of course.

The type of increases we see is, like for example in Colorado, the credit amount is increased from 15% to 25%. This is based on the amount of credit they received on the federal level. We see similar rates in Connecticut. That is boosting the credits from 23% to 30%.

And then the District of Columbia is where we're seeing the most generous expansion. If approved, the credit will be boosted to 100%. And families there will actually get thousands of dollars more in relief. This will be the most generous credit in the country.

JULIA LA ROCHE: What can you tell us about what's happening to the earned income tax credit on the federal level?

DENITSA TSEKOVA: So as I've said, that credit was actually expanded in March, two big changes. It was made fully refundable, meaning the taxpayers receive a refund, even if the credit exceeds their total tax bill. And then the other big change is that the legislation extended the credit to workers without children at home, making many more families eligible for the credit.

And those changes, they were in effect only for 2021. But the Biden administration is looking to extend them even further and make them permanent. This is, of course, part of their $3.5 trillion infrastructure package that the Democrats are trying to pass through reconciliation.

And lastly, those credits are considered reasonably affordable. And in many states, a 10% increase will be less than 1% of the state budget. So we may see even more states joining the federal movement.

JULIA LA ROCHE: So this is something we'll be watching. Thanks, Denitsa, appreciate you.