House Finance Committee holds informational hearing on state earned income tax credit

Harrisburg — The Pennsylvania House Finance Committee held an informational hearing Feb. 26 on legislation to create a refundable state earned income tax credit (EITC) aimed at low- and moderate-income working households.

Representative Chris Sappy, the bill sponsor from Chester County, opened the hearing saying the panel would gather information on a proposal “that would establish a state earned income tax credit for working families.” He and presenters said the measure is intended to supplement the federal EITC and provide direct cash relief to households that earn income but still struggle to pay basic needs.

The United Way of Pennsylvania, represented by Kristen Rotz, president, framed the proposal around the organization’s ALICE (asset limited, income constrained, employed) research and testimony that many households earn above the federal poverty line yet cannot meet a locally calculated “survival budget.” Rotz told the committee roughly 802,000 Pennsylvania tax-filing households claimed the federal EITC in tax year 2023 and that the average federal EITC benefit that year was about $2,600. She said state-level refundable EITCs provide “tax relief to some of these ALICE households and give them dollars back that they can use to help meet their household needs.”

Speakers from children’s and hunger-focused groups described likely downstream effects for children and food security. Priyanka Reyes Cora of Children First said a refundable credit would “make a real difference” for families and children, noting more than 330,000 children in southeastern Pennsylvania live in families below the ALICE threshold. Anne Sanders of Just Harvest, which operates Volunteer Income Tax Assistance (VITA) sites in Allegheny County, described how refundable credits and existing federal credits translate into immediate spending on food, car repairs and bills and can reduce “benefit cliffs” that discourage upward mobility.

Michael Hussey, a tax attorney and longtime VITA program leader, offered client examples from VITA sites to illustrate how federal refundable credits affect household budgets. He described cases in which refunds of roughly $7,800–$11,200 allowed taxpayers to repair vehicles, pay debts and support dependents. “Forty-five percent of [one client’s] income is coming from the earned income tax credit and the child tax credit,” Hussey said, describing the scale of the credit for some claimants.

Dr. Cynthia Osborne, an academic who led an economic-impact analysis of a 25% refundable state EITC for Pennsylvania, told the committee that research finds state EITCs are “pro-work” policies that increase earnings and employment (especially among mothers), increase household resources and reduce child poverty and some adverse birth outcomes. Her benefit-cost analysis estimated about 874,000 Pennsylvania families would benefit from a 25% refundable credit, with an average state benefit of roughly $600 per household; she said the analysis found the total benefits exceed costs by about 3 to 1 and estimated roughly $965 million in net benefits to the Commonwealth each year through increased tax receipts and reduced program spending.

Committee members pressed on fiscal trade-offs. Representative Fritz said an estimated $600 million fiscal cost would add to the gap in the governor’s proposed budget for the coming fiscal year; committee leadership said the Department of Revenue will provide updated fiscal numbers and formal estimates in time for a subsequent hearing. The committee scheduled a second hearing for March 12 in Kennett Square, hosted by Representative Sappy, to review bill text and the Department of Revenue’s fiscal analysis.

Witnesses and lawmakers repeatedly emphasized that state EITC design choices (refundability, percentage of the federal credit, follow-the-federal rules versus state-specific rules) determine which households benefit and by how much. Dr. Osborne noted states vary widely: some offer nonrefundable or small credits while others provide 25%–45% or higher of the federal benefit; the District of Columbia and several states provide more generous percentages. Testimony and packet materials also cited prior committee movement on a similar bill in 2023 and an Institute on Taxation and Economic Policy (ITEP) chart showing most states now offer some form of EITC.

The meeting closed with committee leaders urging follow-up work and fiscal analysis; no formal vote or legislative action occurred at the session.

Looking ahead, the committee plans to reconvene in Chester County on March 12 to review a specific bill draft and Department of Revenue cost estimates.