California Earned Income Tax Credit and Young Child Tax Credit

Quick Facts

• CalEITC: Refundable credit for low-income workers worth up to $3,529 in tax year 2024 (filed in 2025). Amount depends on earned income and number of qualifying children.
• Young Child Tax Credit (YCTC): Provides up to $1,117 for families eligible for CalEITC with at least one child under six.
• ITIN filers: Both credits available to workers using Individual Taxpayer Identification Numbers, including undocumented workers.
• Claim method: File a California Form 540 or 540 2EZ and complete FTB Form 3514.
• Interaction with federal credits: Credits stack with federal EITC and Child Tax Credit, potentially yielding thousands in refunds.

Program Overview

California created the CalEITC in 2015 to supplement the federal Earned Income Tax Credit, providing additional cash to working households. The program has expanded to include self-employed income, higher income thresholds, and the Young Child Tax Credit. Together, these credits can provide over $4,600 in refundable support to families. Refunds can be received even if no state income tax is owed.

The credits aim to reduce poverty and offset high costs of living. Households can use the refund for rent, childcare, debt, or savings. The Franchise Tax Board (FTB) automatically calculates credits when FTB Form 3514 is completed, but filers must ensure accurate information to receive the maximum amount.

Eligibility Requirements

1. Earned income: Wages, salaries, tips, self-employment earnings, or certain disability benefits. Investment income must be $4,200 or less.
2. Income thresholds (2024):
   • No children: Earned income up to $18,751.
   • One child: Up to $30,950.
   • Two or more children: Up to $30,950 (CalEITC), with additional benefits for YCTC when income under $36,951.
3. Filing status: Single, head of household, married filing jointly, or qualifying widow(er). Married filing separately is ineligible.
4. Residency: Must have lived in California for more than half the tax year.
5. Identification: Filers and qualifying children can use SSNs or ITINs. The YCTC requires a child under six with an SSN or ITIN.
6. Age: Workers without qualifying children must be at least 18.

Benefit Calculation

• CalEITC: Calculated using FTB Form 3514. Credit rises with earned income up to a peak, then phases out.
• YCTC: Provides a flat $1,117 for households eligible for CalEITC with a child under six. If CalEITC is less than $1,117, the YCTC equals the difference to reach $1,117. Families with no tax liability still receive the refund.
• Refund delivery: Direct deposit or paper check. Combined with federal credits, families can receive substantial refunds.

Application Process

1. Gather documents: W-2s, 1099s, self-employment records, Social Security numbers or ITINs, proof of residency, and birth certificates for children.
2. File federal return: Completing the federal return first ensures accurate income data and qualifies you for federal EITC/CTC.
3. Prepare California Form 540 or 540 2EZ: Use tax software, free online filing via CalFile, or work with Volunteer Income Tax Assistance (VITA) programs.
4. Complete FTB Form 3514: Enter earned income, qualifying children, and Social Security/ITIN numbers.
5. Claim YCTC: If you have a child under six, indicate this on Form 3514. The FTB will calculate the credit automatically.
6. File by April 15 (or October 15 with extension). Refunds typically arrive within two weeks for e-filed returns with direct deposit.

Documentation Checklist

• Identification for all filers and dependents.
• Proof of California residency (utility bills, lease, school records).
• Income documents: W-2, 1099-NEC, 1099-G, pay stubs, bookkeeping for gig work.
• Child birth certificates or medical records showing age for YCTC.
• Bank information for direct deposit.

Strategies to Maximize Refunds

1. Combine credits: Claim federal EITC, Child Tax Credit, Saver’s Credit, and California credits simultaneously.
2. Use free tax prep: VITA and free file options ensure accurate calculations and avoid paid preparer fees that reduce refunds.
3. Track gig income: Self-employed earners must report net earnings. Deduct legitimate business expenses to maximize credits while avoiding tax liability.
4. Apply for ITIN early: If you need an ITIN, submit Form W-7 with your tax return. Begin the process early to avoid delays.
5. Check YCTC eligibility annually: Children age out when they turn six. Adjust budgets accordingly.
6. Consider CalEITC expansion for foster youth: Youth ages 18-25 who were in foster care at age 13 or older and have earned income up to $30,950 qualify even without children.

Common Errors to Avoid

• Incorrect child information: Ensure names, birth dates, and SSNs/ITINs match IRS records.
• Missing self-employment taxes: Self-employed workers must file Schedule C and pay self-employment tax. Use estimated tax payments to avoid penalties.
• Filing separately while married: Couples must file jointly to claim credits unless legally separated.
• Late filing: File by April 15 to receive refunds promptly. California allows up to four years to claim credits retroactively, but earlier filing speeds relief.
• Ignoring direct deposit: Paper checks take longer and risk loss. Set up direct deposit for faster access.

Interaction with Other Programs

• CalFresh and Medi-Cal: Refunds do not count as income for eligibility. Save documentation in case benefits agencies ask.
• Public benefits offsets: Refunds can be intercepted for child support or certain debts. Contact FTB if you believe an offset is incorrect.
• Advance payments: California does not offer advance CalEITC payments, but budgeting for expected refund can help manage expenses.

Example Scenarios

• Single worker with no children: Ana earned $15,000. She files federal and state returns, receiving $200 from CalEITC and $560 federal EITC, boosting her refund to pay down debt.
• Family with toddler: Luis and Maribel earned $28,000 and have a three-year-old. They receive $2,500 CalEITC and $1,117 YCTC, plus $5,600 federal CTC/EITC. They use refunds to prepay rent and buy a used car.
• Former foster youth: David, age 22, earned $20,000. Because he spent time in foster care, he qualifies for CalEITC without children, receiving about $1,000.

Resources

• CalEITC official page
• Form 3514 instructions
• Young Child Tax Credit overview
• CalFile free online filing
• Find free tax help (211 or Free Tax Prep CA)

Additional Tips

• Plan for savings: Allocate part of the refund to an emergency fund. Many banks offer starter savings accounts for tax refund recipients.
• Split refund: Use IRS Form 8888 and FTB instructions to split refunds between accounts, savings bonds, or ABLE accounts.
• Protect against fraud: Beware of preparers charging fees based on refund size. Report scams to FTB.
• Keep records: Store tax returns and supporting documents for at least four years in case of audit.