As state policymakers consider ways to strengthen the California Earned Income Tax Credit (CalEITC), a refundable state credit for workers with low incomes, a new California Budget & Policy Center analysis examines the demographic characteristics of individuals statewide who are likely eligible to benefit from the CalEITC. We find that children of color and women particularly stand out as groups that can benefit from the credit.
The Budget Center’s analysis* uses Census data to identify individuals who are likely eligible for the CalEITC, based on their reported work and income, and then examines the demographics of these workers and their family members. Results show that:
- Women make up the majority of tax filers who are eligible to claim the CalEITC. More than half of all tax filers likely eligible to claim the CalEITC (59 percent) are women. The share of women is even larger among eligible parents, who receive the largest credits under the CalEITC: Women make up 7 in 10 tax filers with children who are eligible for the CalEITC.
- The CalEITC particularly benefits people of color, especially children of color. About two-thirds of workers who are likely eligible to claim the credit (68 percent) are people of color, Latinos accounting for the largest share. Among children eligible to benefit from the CalEITC, 4 in 5 are children of color, and more than half are Latino.
- Families and individuals who can benefit from the CalEITC are spread throughout California. Eligible CalEITC beneficiaries live in all regions of the state. About 40 percent of the parents, children, and single adults eligible to benefit from the credit reside in the Los Angeles and South Coast region.
State legislators have shown interest in strengthening the CalEITC and expanding eligibility to benefit more families and individuals. Doing so would help workers with low incomes — and their families — move toward greater financial security, which would particularly benefit women and people of color throughout California.
— Sara Kimberlin
[expand title=”Click here to see further information about the data source and analysis methodology.” swaptitle=”Hide additional information”]These estimates are based on US Census Bureau, American Community Survey (ACS) microdata (from the Integrated Public Use Microdata Series) for California for 2015. The estimates were developed by first constructing tax units and calculating federal income taxes in the ACS data using an income tax simulation program developed for the California Poverty Measure, a collaborative project of the Stanford Center on Poverty & Inequality and Public Policy Institute of California. This income tax simulation program uses self-reported information about family relationships and income in the ACS, which is assembled and then processed through the Taxsim tax calculator developed by the National Bureau of Economic Research. The tax units and federal adjusted gross income produced through the tax simulation program are then combined with additional ACS data related to wage earnings and work participation to identify individuals likely eligible to file tax returns to claim the CalEITC and to calculate their estimated CalEITC credit amounts. The family members of these tax filers are then also identified, in order to analyze demographic characteristics of all people likely to benefit from the CalEITC.
These estimates have certain limitations. The ACS is a useful data source for examining CalEITC eligibility because it has a large sample that is representative of the full population of California (including individuals who do not file income taxes), and it includes relatively detailed income and family and demographic information, including information not available in administrative tax data. However, some information that is relevant to CalEITC eligibility is not directly reported in ACS data. For one, tax units and immigrant legal status of tax filers are not reported in ACS data, so these are imputed in the California Poverty Measure income tax data. In addition, “California earned income” for purposes of the CalEITC only includes earnings subject to withholding, but individuals do not report in the ACS whether their wages are earnings subject to withholding versus earnings from the informal labor market. (Individuals do separately report business/self-employment income.) To account for potentially ineligible wage earnings, these estimates of CalEITC eligibility exclude individuals whose reported wages are likely not earnings eligible to be counted for CalEITC purposes by calculating an estimated hourly wage based on reported weeks and usual hours worked in the prior year, and then excluding from CalEITC eligibility all individuals whose maximum estimated hourly wage is less than 75 percent of the state minimum wage, under the assumption that sub-minimum wage earnings are likely to be from the informal labor market.
The estimation and imputation strategies used in this analysis are necessary to deal with information that is not directly reported in the ACS, and to examine characteristics of individuals who are likely eligible for the CalEITC though they may not file taxes to claim the credit. As a result, however, these estimates have a level of uncertainty and should be interpreted accordingly.
For further information about these analytical methods, contact Sara Kimberlin, Senior Policy Analyst, California Budget & Policy Center, at skimberlin@staging.calbudgetcenter.org.
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