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

  • 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‚Äôs 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.