Tucked away into the same bill which increased South Carolina’s gas tax was additional language creating a new tax credit that could allow certain lower-income South Carolinians to save hundreds, if not thousands, each year.
The proposal creates a state Earned Income Tax Credit (EITC), similar to one that already exists on the federal level. But, unlike the federal version, it is factored into tax liability on the front end. That means the state Department of Revenue will use the credit when determining how much to withhold from a recipient’s paycheck each month.
“People (eligible for the credit) would actually have to pay less in state income tax and that amount would be credited to their paycheck,” State Rep. Marlon Kimpson, D-Charleston, said. “So, in other words, they’ll take more home in their paycheck by paying less state taxes.”
Kimpson pushed for the credit to be included as a compromise to get Democrats to support other tax credits in the gas tax bill. Some Senate Republicans had said they would not support increasing the state’s gas tax without corresponding decreases elsewhere. The House did not include the credit in its version of the bill, but agreed to a compromise version this month which included the EITC.
South Carolina is now the 27th state to offer some form of EITC, according to United Way Association of SC public policy director Naomi Lett. “It’s included in the roads bill because the impact of a 12-cent increase in the gas tax means for someone making for someone making $7.25 an hour is different than for someone making $50,000 a year,” she said.
The plan phases in the credit over the next six years until eligible South Carolinians will receive a credit worth up to 125 percent of the federal EITC in 2023. In other words, if an individual receives the average credit on the federal level, he or she would receive 1.25 times that amount in state credits.
The EITC is designed to help working families, allowing for much higher income limits for families than single adults. It also can only be collected if the individual earns a paycheck. Using the federal EITC tables, a single filer with no children could receive the credit if they earn less than $15,000 per year. But a married couple filing jointly could receive the credit if they report less than $54,000 in income.
Internal Revenue Service documents show the average amount received under the credit in South Carolina last year was $2,592 per family, meaning they could receive more than $3,200 in credits if applying the 125 percent metric. However, Lett emphasized the average can be misleading because it is distorted by families on the upper end of the scale and because many lower-income workers don’t earn enough to reach the full credit they’re owed.
“Most of the people who qualify for this don’t necessary have that high of a tax burden,” Lett said. “But they do, on average, pay a higher percentage of their total income in taxes than other people do.” She said the typical credit is closer to $250-$300.
State budget analysts predict the credit will eventually cost the state $43 million per year once fully phased in. As of now, funding for the credits will come from surplus General Fund revenue. However, Kimpson admitted legislators may have to address funding again should tax revenues decrease in the future.