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Analysis: Working families’ tax exemption will provide up to $1,200 per year to low-income Washingtonians

The working families’ tax exemption passed by the Legislature will provide up to $1,200 for individuals who qualify based on income, according to an analysis from the Washington Research Council (WRC).

The maximum $1,200 remittance would go to individuals with three or more children. The other maximum amounts are $900 if the individual has two children, $600 if the individual has one child, and $300 if the individual has no children. These remittance amounts, adjusted for inflation annually, will be subject to a phase-out calculated by a percentage per additional dollar of income.

At the low end, the phase-out amount is 18% per additional dollar of income beginning at $2,500 below the federal phase-out for individuals with no children. At the high end, it is 18% per additional dollar beginning at $5,000 below the federal phase-out for individuals with three or more children.

Eligibility for the working families’ tax exemption is determined based on whether an individual is eligible for the federal earned income tax credit – or the earned income tax credit – and has lived in Washington for more than 180 days in the year they claim the credit.

After its creation in 2008, the working families’ tax exemption remained unfunded for nearly 13 years. Via ESHB 1297, the Legislature voted to to fund the exemption in a a near unanimous vote. Benefits would begin going out in 2023, sending $250 million to about 420,000 taxpayers and $536 million in the subsequent two-year budget cycle. The bipartisan 2021 version was sponsored by Rep. My Linh Thai (D – Bellevue) and Rep. Drew Stokesbary (R – Auburn).

The 2021 version removed two requirements tied the exemption. One requirement the bill removed prevents the ability to claim exemption from being contingent on approval by the Legislature in the operating budget. The bill also removes the requirement that claimants have paid sales tax.

The final Senate and House operating budgets are expected to be released Saturday. WRC pointed out that the budgets passed by both chambers, before negotiations, appropriate $268.2 million for the working families’ tax exemption in 2021–23. Of that funding, $142.2 million would come from the general fund–state and $126.0 million would come from the taxpayer fairness account.

Rather than sending some revenues to the taxpayer fairness account as originally proposed, the version of the capital gains tax bill that was passed by the House Wednesday would dedicate all revenues to the education legacy trust account.

“If that change holds, the Legislature will have to find $126 million from another source to fully fund the working families’ tax exemption,” writes WRC.

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