Tax Implications of Welfare Reform: The Minnesota Experience

Partly in response to welfare reform, an increasing number of states have enacted refundable tax credits to assist low-income working families. These state credits are layered on top of the federal tax system, state welfare programs, and direct state subsidies for child care. Minnesota's experience shows how state earned income credits might be redesigned to better meet their goals. It also illustrates how difficult it is to integrate a refundable state child care credit with the non-refundable federal credit, pretax accounts, and direct subsidies for child care.