Pritzker’s new budget would create state child tax credit

Illinoisans with children younger than 3 could soon get a break on their state taxes. Gov. J.B. Pritzker’s newest budget would let qualifying parents around the state keep $12 million in taxes.

There is good news for Illinois parents in Gov. J.B. Pritzker’s budget proposal, which calls for creation of a state-level child tax credit that would return $12 million to taxpayers with children under age 3.

A child tax credit could help Illinois’ neediest residents keep more of their paychecks while encouraging work. Pritzker’s proposal phases-in benefits with earned income, a sign of good tax policy.

Minnesota created a state-level child tax credit of $1,750 per qualifying child starting in tax year 2023 with no limit on the number of children. It’s one of 14 states with child tax credits.

The benefit would be calculated using the Illinois Earned Income Tax Credit, which would phase out once an individual’s income reached a certain level. Illinois’ earned income tax credit phases out completely for single parents earning as little as $46,560.

Tax credits that phase out can harm labor market decisions and lead to rapid increases in effective income tax rates for individuals who no longer qualify for the tax credit. More details from the Pritzker administration are needed to truly determine whether the proposed structure would help or hurt.

Pritzker’s proposed child tax credit is better structured than current proposals filed in the Illinois General Assembly, which have no phase-in but do contain a phase-out schedule – the opposite of what experts recommend. They could very well wind up fostering greater dependence on the state’s social safety net, the opposite of their intended effect.