PROVIDENCE, RI – In an effort to help working families keep more of the money they earn, boost Rhode Island’s economy, and provide local businesses with the financial stability and certainty they need to succeed, U.S. Senator Jack Reed helped pass legislation earlier this month to enhance and extend several targeted tax benefits.  Attached to the omnibus appropriations bill that Congress passed on December 18 was a tax extenders package that includes several provisions supported by Senator Reed designed to help working families and grow our economy. The extenders package includes an expanded Earned Income Tax Credit (EITC) and improvements to the Child Tax Credit (CTC), the American Opportunity Tax Credit, and the Work Opportunity Tax Credit.  And in an effort intended to spur innovation, the bill also permanently extends the Research and Development Tax Credit and extends tax credits for investments in clean, renewable energy that will support green jobs in Rhode Island.

“We need a multi-faceted approach to growing our economy and increasing living standards for working families,” said Senator Reed.  “Congress recently passed a law providing significant tax relief for hardworking Rhode Islanders.  I hope businesses will follow through on the bill's provisions which are intended to encourage more hiring and wage growth.  Although I did not support every provision in the tax extenders package, I voted for the bill because it helps working families keep more of their hard earned money and provides the financial certainty businesses need to better plan for the future.”

Senator Reed, who earlier this year cosponsored the Working Families Tax Relief Act of 2015, outlined several key provisions he supported that will benefit Rhode Island, including:

Earned Income Tax Credit (EITC): The new law provides $30 billion to permanently extend an increased credit for working families.  The EITC for low- and moderate-income workers rewards work, offsets federal payroll and income taxes, and helps families meet their basic needs.  The new law makes permanent the enhanced credit for families with three or more children and increased phase-out range for married couples filing jointly.

According to a December 2015 report by the Middle Class Prosperity Project, the permanently expanded EITC would help 29,000 Rhode Island families and individuals, and boost the local economy by $19.4 million.

Child Tax Credit (CTC): The new law provides $88 billion to permanently extend and expand the CTC, which is critical to helping middle- to low-income families with the cost of raising a child.  In addition to a $1,000 credit per qualifying child, since 2009 parents have been granted an additional refundable credit equal to 15% of earned income in excess of $3,000.  This threshold was set to revert back to $10,000 in 2017.  But the new law makes the lower threshold permanent, putting additional cash in the pockets of thousands of Rhode Islanders.

According to the latest estimates from the Center on Budget Policy and Priorities, 84,000 Rhode Island households received the EITC in 2012, while 54,000 Rhode Island households received the low-income part of the CTC in 2012.  And 29,000 Rhode Islanders were lifted out of poverty by the EITC and CTC, including 14,000 children, each year, on average, during 2011 to 2013. The EITC put about $181 million into Rhode Island’s economy in 2012.

Reed noted that if the EITC and CTC were allowed to expire, it would have meant a loss of about $940 per year to the average Rhode Island family that currently receives the benefit.

American Opportunity Tax Credit (AOTC): The new law provides $80 billion to permanently extend the AOTC, which helps students and families afford postsecondary education.  First established under the Recovery Act in 2009, the AOTC provides many middle-class families with $1 back on their taxes for every $1 spent on undergraduate college education expenses for the first $2,000 and 25% of the next $2,000 for a total of up to $2,500 per year. 

“The American Opportunity Tax Credit is designed to help make college more affordable for middle-class families.  I want to ensure that all eligible Rhode Islanders are taking advantage of this opportunity to help pay for college,” stated Reed, who helped inform hundreds of families about the AOTC at his annual financial aid workshop last month.

Work Opportunity Tax Credit (WOTC) is a tax incentive program designed to encourage employers to hire and retain individuals from specific target groups with employment barriers.  These groups include veterans, Empowerment Zone residents, and SNAP recipients.  The new law adds a “long-term unemployed” category.  Long-term unemployed recipients are defined as individuals who are unemployed for not less than 27 consecutive weeks and received unemployment compensation for a period of time under State or Federal law.  This new category is effective for employees who start work after December 31, 2015. 

“The national economy has made great strides, but there are still more than two million Americans who have been out of work for more than six months.  It is imperative that we keep working to strengthen our economy, create jobs, and provide a fair shot for everyone.  This provision will encourage more companies to give applicants who’ve experienced long-term unemployment a second look by providing a $2,400 incentive to hire them,” said Reed.

Research & Development Tax Credit: The new law provides $113 billion to permanently extend the Research and Development Tax Credit, which helps encourage business innovation and research.  Starting in 2016, businesses with under $50 million in gross receipts will be free to use the credit to offset the alternative minimum tax.  Also, certain start-up businesses which may not have an income tax liability will be able to offset payroll taxes with the credit.

Energy Tax Provisions: In an effort to keep America on track toward a more sustainable energy future, Senator Reed cosponsored the Incentivizing Offshore Wind Power Act and the new law contains key elements of that bill, providing multi-year extensions of wind, solar, and alternative fuel credits.  It provides a 10 percent tax credit, up to $500, for qualified energy-efficiency improvements to homes.  So Rhode Islanders adding insulation or weatherizing homes may be eligible to get rebates.  The $500 limit includes any amount claimed previously under the same tax credit.  The new law also includes new deductions for qualified conservation contributions based on provisions from the Conservation Easement Incentive Act of 2015, which Senator Reed cosponsored.  This federal tax deduction for people donating conservation easements could make it easier to protect open space and farm land from development.   

Educator Expense Deduction for Teachers Buying School Supplies: K-12 teachers who purchase classroom supplies for their students out of their own pockets will now be eligible for an above-the-line deduction of up to $250.  And the deduction will be indexed to inflation so its value will increase over time.  Professional development costs will be eligible too, starting in 2016. 

Tax-Free Transfers to Charity Renewed for IRA Owners 70½ or Older: The new law includes several charitable giving incentives that could benefit Rhode Islanders, including allowing taxpayers over 70 ½ years old to make tax-free donations of up to $100,000 directly from an individual retirement account (IRA).

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