Thousands of low-income WA families qualify for a tax credit they aren’t claiming

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Less than half of Washington residents eligible for a tax credit aimed at low-income working families received it last year — the first year it was available.

Still, the state met its goal of reaching at least 40% of those eligible for the Working Families Tax Credit, according to a recent Department of Revenue report . The report said 45% of eligible households claimed the credit. It also found 86% of applicants were approved for it and 56% of applications were processed within 30 days.

Misha Werschkul, executive director of the Washington State Budget and Policy Center, said she sees the uptake rate as a “huge success.” The tax credit, Werschkul said, is “making a real difference for folks and during a time of a lot of economic hardship.”

“Washington has one of the most inequitable tax systems in the country. Low-income people are paying a higher effective tax rate here than most other states,” Werschkul said. “The Working Families Tax Credit is a really targeted and thoughtful way to help offset the amount of taxes paid by lower income Washingtonians.”

The state estimated that about 360,000 Washington residents would qualify for the tax credit, which provides an annual refund of $50 to $1,255 depending on income level and the number of qualifying children in a taxpayer’s household. As of Dec. 31, 2023, the department issued 163,348 refunds, amounting to $116,776,567.

The report notes that similar programs often struggle to get off the ground in the first year due to complex application processes and because they are unknown and not trusted by the communities they intend to serve. It also points out that a barrier to participation in Washington is that the state doesn’t have an income tax.

“One of the greatest difficulties of pioneering an individual tax credit in a state without an income tax is finding ways to validate the eligibility of applicants while minimizing the burden on individuals applying for the credit,” the report says.

While the tax credit was signed into law in 2008, it wasn’t funded by the Legislature until 2021 , when federal COVID funds finally pushed lawmakers to funnel money into the program.

Anyone can check if they qualify for the tax credit through the Department of Revenue’s website .

That includes undocumented immigrants and anyone else with an Individual Taxpayer Identification Number, which is often used by people who can’t get a Social Security number. Werschkul said she was glad to see nearly one in 10 people who received the credit last year used an Individual Taxpayer Identification Number.

Taxpayers can apply for prior years and the application for a refund is available year-round.

Programs like this can be prone to fraud. The department said 1.6% of applications were immediately rejected after being identified as fraudulent and 4.5% were “possibly fraudulent” and ultimately denied.

Advocates hope the Legislature will consider streamlining government benefit application processes for low-income people to help more families access the tax credit and other programs.

“There are barriers that the state puts in place to prevent low-income people from being able to access the services and programs they are entitled to,” said Stephan Blanford, executive director at Children’s Alliance.

Blanford praised House Bill 1895 , which Gov. Jay Inslee signed into law in June, for allowing state agencies to verify eligibility using information from other federal and state agencies. He said advocates would like to see one application form that allows people to access multiple or all of the programs they’re eligible for.

For example, low-income households eligible for cash assistance through the state’s Temporary Assistance for Needy Families program are also eligible for the tax credit, but must go through two different state agencies and apply twice with similar information.

Werschkul said HB 1895 is a good step and she’s glad to see it was requested by the Department of Revenue, but she hopes the state will find a way to integrate federal and state systems, especially with the launch of IRS Direct File , the Internal Revenue Service’s new free tax filing system.

The state Department of Revenue has set a goal to reach at least 50% of eligible applicants for the Working Families Tax Credit next year. To reach its goal, the department recommends the state provide additional funding for media campaigns and partnerships with community organizations and money for efforts to simplify the application process.

Werschkul said she’d be more ambitious than that. She pointed out that a federal tax credit program with similar eligibility requirements has about a 70% takeup rate and said she’d use that as a benchmark instead.

“I think our state can do better than the federal government on this,” Werschkul said.

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