Comptroller Peter Franchot is urging Maryland taxpayers who are collecting unemployment insurance to plan for the potential loss of Earned Income Tax Credits (EITC) that they would normally receive.
The EITC is a benefit for people with low-to-moderate-incomes. Taxpayers who meet all of the federal requirements may be eligible for a Maryland credit up to half of the federal EITC, but not greater than the state income tax.
While unemployment insurance is taxable, it is not included in the calculation for earned income tax credits — which could result in a forfeiture of the credits and potentially a higher tax liability. This could apply to both federal and state taxes.
“I advise Marylanders to prepare now for potential future tax changes,” Franchot said. “This will avoid unpleasant surprises when filing and help mitigate any impact that losing those tax credits may have.”
According to a press release:
For some taxpayers, the enhanced unemployment insurance benefits contained in the federal stimulus package may have provided more income than they normally earn. Although taxpayers can reduce their tax obligation by having taxes withheld from their benefit payments, many elect not to do so. Taxpayers claiming EITC may have had reduced tax liability or received large refunds in past years. Filers who report a greater annual income due to enhanced unemployment insurance payments may no longer be able to claim expected Earned Income Tax Credits.
Comptroller Franchot urges Marylanders to plan ahead for this potential change in total taxable income that may alter anticipated refund amounts.
In Maryland, 413,000 households, or 15% of all tax filers, benefitted from earned income tax credits in tax year 2018. The average value of the EITC on federal taxes was $2,356; the average value on state taxes was $792. Since the average EITC beneficiary is most often a single head of household with one child, the credit is an important tool that helps lift people out of poverty.