The federal government offers an Earned Income Tax Credit (EITC) to working families in an effort to combat poverty and help Americans retain a little extra of their hard-earned money. For lower income families, the EITC can be a big help at tax time, as it can keep taxpayers above the poverty line.

Many states offer their own version of the EITC, and Iowa is no exception. For residents in Iowa, they can claim the state EITC as long as they meet the eligibility requirements for the federal credit. Iowa’s EITC is modeled after the federal credit directly, offering a state credit that is equal to 15 percent of the federal credit.

Iowa is one of twenty-one states (and the District of Columbia) that offer a fully refundable credit. In doing so, taxpayers can receive a refund for any credit amount that exceeds their tax liability. This means that families who have zero income tax liability can receive the entire amount of the EITC as a refund. The EITC can help taxpayers offset other Iowa state and local taxes.

The EITC is one way that governments can encourage families to keep working despite lower wages, and is therefore effective at keeping poverty levels low.