This report by Alissa Anderson was first published by California Budget & Policy Center (January 2025).
California’s refundable income tax credits — CalEITC, YCTC, and FYTC — play a crucial role in combating poverty and promoting economic security for millions of low-income families and individuals. These programs prove how targeted policies can address the state’s high cost of living, advance racial equity, and provide vital financial support.
Every Californian deserves to be able to put food on the table, pay the rent, and support their families. Still, millions of people across California struggle to afford basic needs every day. California’s high cost of living has long been a challenge for state residents, but it has grown more acute in recent years, particularly for families and individuals with low incomes, due to persistently high inflation and housing costs. And while state leaders have made progress boosting workers’ earnings by raising the minimum wage and pay in specific industries, many jobs still fail to pay enough to cover essential expenses. In the face of these challenges, refundable income tax credits play a vital role in helping Californians with low incomes make ends meet.
Refundable income tax credits are proven tools for improving people’s economic security. For decades, the federal Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) have provided hundreds or thousands of dollars in tax refunds to families and individuals with low incomes, helping them pay for food and other basic needs, and lifting millions of people out of poverty each year. These credits have also been linked to long-term benefits for children, including better health and school achievement, higher educational attainment, and increased employment and earnings when children become adults. Given these benefits, many states have state versions of these credits to enhance the positive effects of tax credits for state residents.