LEGISLATIVE FISCAL ESTIMATE

ASSEMBLY, No. 4204

STATE OF NEW JERSEY

214th LEGISLATURE

 

DATED: JULY 11, 2011

 

 

SUMMARY

 

Synopsis:

Restores benefit under State earned income tax credit program to 25 percent of federal credit beginning in Tax Year 2011.

Type of Impact:

Increased and continuing loss of revenue to the Property Tax Relief Fund.

Agencies Affected:

Division of Taxation, Department of the Treasury.

 

 

Office of Legislative Services Estimate

Fiscal Impact

FY 2012

FY 2013

FY 2014

 

State Revenue

($58,800,000)

($59,700,000)

($60,800,000)

 

 

 

 

·        According to Division of Taxation data, approximately 485,605 taxpayers received a State Earned Income Credit (EIC) benefit during TY 2008, the most recent year for which data are available.  This total reflects a 90 percent participation rate in the State EIC program by NJ taxpayers receiving a federal Earned Income Tax Credit (EITC).

·        Under the bill, the average EIC benefit amount will be approximately $572, assuming a level number of program participants.  The maximum benefit amount provided under the State EIC will be approximately $1,438 (see tables below) which maxes out at an adjusted gross income level (AGI) of approximately $21,500.

·        The provisions of the bill are applicable beginning immediately in Taxable Year 2011 (State Fiscal Year 2012).

BILL DESCRIPTION

 

Assembly Bill No. 4204 of 2011 restores, beginning for New Jersey gross income tax year 2011 and thereafter, the benefit amount provided under the State EIC program as a percentage of the federal EITC.

As part of the Governor’s Budget Recommendation for Fiscal Year 2011, the State EIC benefit amount was reduced from 25 percent of the federal EITC to 20 percent of the federal credit amount for an estimated savings of $45 million.  This bill restores the State credit to the maximum benefit amount previously allowable under the State program.

 

FISCAL ANALYSIS

 

EXECUTIVE BRANCH

 

      The Executive has not submitted a fiscal note for this bill.   However, the Executive’s Budget-in-Brief for FY 2011 indicated that the reduction of EIC benefit, subsequently adopted as P.L.2010, c.27, and which this bill reverses, would reduce taxpayer benefits, and increase State gross income tax revenues deposited into the Property Tax Relief Fund (PTRF), by $45,064,000 in FY 2011.

 

OFFICE OF LEGISLATIVE SERVICES

 

            The Office of Legislative Services (OLS) projects the incremental cost of implementing this legislation will be approximately $58.8 million in FY 2012 (TY 2011), $59.7 million in FY 2013 (TY 2012) and $60.8 million in FY 2014 (TY 2013).

      This OLS estimate is approximately $13 million higher than the Executive’s projection provided during the FY 2011 budget process (with which the OLS concurred) regarding a reduction in the State benefit amount, from 25 to 20 percent of the federal credit amount.   As explained in further detail below, the OLS estimate is based on the latest data available from both the Internal Revenue Service (IRS) and the State Division of Taxation.  The OLS largely attributes the revised higher estimate to increased participation in the State program by New Jersey taxpayers claiming a federal EITC.  According to IRS and Division of Taxation data, of the 536,000 NJ taxpayers claiming a federal EITC in TY 2008, almost 486,000 taxpayers participated in the State program, a participation rate in excess of 90 percent compared to participation rates which were generally five to ten percentage points lower in earlier program years.

      In arriving at its $58.8 million estimate, the OLS relied on IRS EITC program statistics which indicate more than 561,000 New Jersey families claimed $1.2 billion under the federal program in TY 2009.  Using these data, the OLS projected the total amount of federal EITC claims for subsequent tax years by assuming a growth rate of 1.5 percent based on IRS “preview” data of the maximum federal credit amounts anticipated for TY 2011.  Applying to the adjusted data the proposed increase in the State benefit amount (from 20 percent to 25 percent of the federal credit amount) yielded an estimate of total State EIC program costs.  These costs were then discounted to reflect the most recent participation rates for NJ taxpayers participating in both  (State and federal) programs.

      Under the EIC, the State benefit amount is increased annually reflecting annual adjustments in federal EITC income eligibility limits and benefit amounts.  For illustrative purposes, the OLS has calculated approximate State credit amounts, based on income and family size, as follows for Tax Year 2011 (State FY 2012).  The charts below are based on IRS publication 596 (EITC credit tables) for TY 2010 and an estimated federal credit amount for TY 2011 based on the IRS "preview" data for next tax year.


 

Estimated Earned Income Credit Amount

(For illustration only)

Married filing joint w/3 children

 

 

 

 

 

 

FY 2011

FY 2012

A-4204

AGI

TY 2010

TY2011**

State EIC

State EIC

Enhanced

Maximum

Fed EITC

Fed EITC

20%

25%

Benefit

$10,000

$4,489

$4,556

$898

$1,139

$241

$15,000

$5,666

$5,751

$1,133

$1,438

$305

$20,000

$5,666

$5,751

$1,133

$1,438

$305

$25,000

$4,925

$4,999

$985

$1,250

$265

$30,000

$3,872

$3,930

$774

$983

$208

$35,000

$2,819

$2,861

$564

$715

$152

$40,000

$1,766

$1,792

$353

$448

$95

$45,000

$608

$617

$122

$154

$33

 

Married filing joint w/1 child

 

 

 

 

 

 

FY 2011

FY 2012

A-4204

AGI

TY 2010

TY2011**

State EIC

State EIC

Enhanced

Maximum

Fed EITC

Fed EITC

20%

25%

Benefit

$10,000

$3,050

$3,096

$610

$774

$164

$15,000

$3,050

$3,096

$610

$774

$164

$20,000

$3,050

$3,096

$610

$774

$164

$25,000

$2,488

$2,525

$498

$631

$134

$30,000

$1,689

$1,714

$338

$429

$91

$35,000

$890

$903

$178

$226

$48

$40,000

$91

$92

$18

$23

$5

$45,000

n/a

 

 

 

 

 

Single filer w/3 Children

 

 

 

 

 

 

FY 2011

FY 2012

A-4204

AGI

TY 2010

TY2011

State EIC

State EIC

Enhanced

Maximum

Fed EITC

Fed EITC

20%

25%

Benefit

$10,000

$4,489

$4,556

$898

$1,139

$241

$15,000

$5,666

$5,751

$1,133

$1,438

$305

$20,000

$4,923

$4,997

$985

$1,249

$265

$25,000

$3,870

$3,928

$774

$982

$208

$30,000

$2,817

$2,859

$563

$715

$151

$35,000

$1,764

$1,790

$353

$448

$95

$40,000

$711

$722

$142

$180

$38

$45,000

n/a

 

 

 

 

 

            Additionally, as reported by the Division of Taxation, the distribution of NJ taxpayers receiving an EIC benefit in TY 2008 was as follows:

 

State EIC program -- TY 2008

Adjusted

Number of

Refundable

Non-Refundable

Income

taxpayers

Amount

Amount

0 - 10K

151,794

$42,343,850.60

$81,886.30

>10K-20K

158,836

105,493,830.10

3,587,187.01

>20K-30K

113,208

29,702,708.59

25,918,554.26

>30K-40K

59,412

2,270,411.71

15,063,710.76

>40K-50K

2,259

52,404.06

731,415.41

>50K

96

7,484.00

69,054.11

 

 

 

 

Total

485,605

$179,870,689

$45,451,808

 

 

 

 

 

 

Total EIC credits

$225,322,497

 

 

Average benefit

$464

 


 


Section:

Revenue, Finance and Appropriations

Analyst:

Catherine Z. Brennan

Principal Fiscal Analyst

Approved:

David J. Rosen

Legislative Budget and Finance Officer

 

This fiscal estimate has been prepared pursuant to P.L.1980, c.67 (C.52:13B-6 et seq.).