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We recently marked Earned Income Tax Credit Awareness Day (Jan. 23, 2026), the annual outreach campaign led by the Internal Revenue Service and partners to help working and low-income families learn about the refundable tax benefits they qualify for and how to claim them during tax season. The EITC is one of the most effective anti-poverty tools in the federal tax code, with about 23.5 million taxpayers receiving roughly $68.5 billion in EITC refunds in 2024, averaging about $2,916 per family — yet roughly one in five eligible taxpayers misses out because filing is too confusing or costly. To make filing easier, the IRS piloted the Direct File program, allowing taxpayers to file their federal returns directly and for free; it was used by more than 140,000 filers in its first year and nearly 300,000 in the following season, with users overwhelmingly rating it “excellent” or “above average”.
Unfortunately, the Trump administration decided to end Direct File amid political opposition and debates over usage and cost, removing a proven pathway that helped families claim these vital credits and leaving many to navigate complicated, expensive commercial tax-preparation options — making it even harder for families to secure refunds that help pay for essentials such as rent, groceries and child care.
A refundable, or cash-back, tax credit means taxpayers can receive the credit even if it exceeds their tax liability. If someone owes $0 or less than the credit amount, they receive the remaining balance as a refund.
The Colorado Fiscal Institute has long advocated for refundable state tax credits such as the Earned Income Tax Credit (EITC), the Child Tax Credit (CTC), and the Family Affordability Tax Credit (FATC), which return money directly to working and low-income families.
Research consistently shows that refundable tax credits reduce poverty. The EITC lifted an estimated 4.4 million people out of poverty in 2024, including 2.3 million children. These credits are associated with positive lifelong outcomes, including higher birthweights, improved childhood health and academic achievement, increased educational attainment, higher wages, and reduced poverty in adulthood.
With tax season approaching, it is critical to highlight the credits available to working and low-income families. Despite reduced state revenue due to preferential tax cuts, most of these credits remain available for the upcoming filing season. One of the biggest reasons eligible taxpayers do not claim refundable credits is a lack of awareness that they exist.
These credits are designed for lower-income and working families to help cover basic needs such as rent, food, transportation, and child care. All credits phase out as income increases and end once income reaches a specified maximum.
Colorado’s EITC was initially available only to filers who claimed the federal EITC. In 2020, the state expanded eligibility to include filers using Individual Taxpayer Identification Numbers (ITINs). The credit amount depends on income, marital status, and number of children. The credit increases as earnings rise until it phases out. Taxpayers earning more than $64,000 are not eligible. Approximately 317,000 Coloradans claimed the federal EITC in 2024, with an average credit of $2,324.
In 2021, Colorado further expanded eligibility so that all working Coloradans age 19 and older, with or without children, qualify for the credit.
The Child Tax Credit is a per-child credit adjusted based on a child’s age, income, and marital status. In 2025, the federal CTC increased to $2,200 per child, with a requirement that at least one parent have a Social Security number. Colorado’s Child Tax Credit is separate from the federal credit, meaning filers using ITINs are also eligible. The state credit ranges from $200 to $1,200 per child.
In 2024, the Colorado Legislature passed HB24-1311, creating the Family Affordability Tax Credit. Like the CTC, it is a per-child credit adjusted based on age, income, and marital status.
Single filers earning less than $15,000 and joint filers earning less than $25,000 qualify for the full $3,200 credit. The credit then phases out, with single filers earning more than $85,000 and joint filers earning more than $95,000 no longer eligible.
According to the Office of State Planning and Budgeting, this credit is expected to be unavailable in tax year 2026 due to insufficient net collections caused by H.R. 1.
In 2024, the IRS successfully piloted Direct File, a free online service that allowed taxpayers in 12 states to prepare and file their taxes electronically, with an option to make the program permanent in 2025. The IRS received 140,803 Direct File returns, helping lower-income taxpayers complete their returns and claim credits such as the EITC and CTC.
Seventy-four percent of users reported that Direct File was their preferred filing method, and 95 percent expressed satisfaction. Users found the process faster, more straightforward, and less costly, providing strong justification for making the program permanent.
The Trump administration has since announced plans to end Direct File, forcing low-income taxpayers to rely once again on commercial, for-profit tax preparation companies. Concerns have been raised that profit motives may outweigh commitments to provide truly free filing services.
The administration has proposed returning to the Free File program, under which private companies agree to offer free tax filing to certain taxpayers. This program has been widely criticized as ineffective and misleading, with taxpayers often steered into paid products through confusing language and hidden fees. Returning to these practices disproportionately harms working-class and low-income families who depend on free filing options.
With loss of access to a free and reliable service such as Direct File, many Coloradans face returning to deceptive and for-profit tax preparation companies and missing out on tax credits that are still available. Additionally, cuts to Colorado’s net collections impact availability of refundable credits like the FATC.
CFI believes in crucial tax credits to uplift all families in Colorado. Returning money to our lower-income and working families through the EITC generates an impact in the economy, boosting all businesses and tax net collections in Colorado. Not only the EITC, but all credits including the CTC and FATC.
It is critical to continue advocating for the return of Direct File and other policies that make it easier for families to claim the tax credits they qualify for. In the meantime, helping spread the word matters. Talking with family and friends about refundable tax credits and connecting them to free or low-cost tax preparation services through Get Ahead Colorado at https://www.getaheadcolorado.org/ can help ensure more Coloradans access the support designed for them.
