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Impact of State Income Taxes on Low-Income Families in 2006.

According to "The Impact of State Income Taxes on Low-Income Families in 2006," Jason Levitis, a policy analyst and counsel to State Fiscal Project at the Center on Budget and Policy Priorities, poor families in many states face substantial state income tax liability for the 2006 tax year.

In 19 of the 42 states that levy income taxes, two-parent families of four with incomes below the federal poverty line are liable for income tax. In 15 of the 42 states, poor single-parent families of three pay income tax. And 29 of these states collect taxes from families of four with incomes just above the poverty line.

Some states levy income tax on working families in severe poverty. Six states--Alabama, Hawaii, Indiana, Michigan, Montana and West Virginia--tax the income of two-parent families of four earning less than three-quarters of the poverty line for such families. All of these states except Indiana also tax the income of one-parent families of three earning less than three-quarters of the poverty line.

In some states, families living in poverty face income tax bills of several hundred dollars. A two-parent family of four in Alabama with an income at the poverty line owes $573 in income tax, while such a family in Hawaii owes $546, in Arkansas $427, and in West Virginia $406. Such amounts can make a big difference to a family struggling to escape poverty.

Eliminating state income taxes on working families with poverty-level incomes gives a boost in take-home pay that helps offset higher child care and transportation costs that families incur as they strive to become economically self-sufficient, according to the author. In other words, relieving state income taxes on poor families can make a meaningful contribution toward "making work pay."
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Title Annotation:noted studies
Publication:Policy & Practice
Article Type:Brief article
Geographic Code:1USA
Date:Jun 1, 2007
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