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New Institute Study on Earned Income Tax Credit

Yesterday, Bread for the World Institute released a study on the unassuming Volunteer Income Tax Assistance (VITA) program that helps low-income families receiving the Earned Income Tax Credit (EITC) keep more of their benefits. I've written about the EITC before, but it's importance comes into focus again as tax day, April 15, approaches. The EITC lifts millions of people out of poverty. It is hands down the most effective anti-poverty program.

Meanwhile VITA makes up a small percentage (1%) of how people file for the EITC. Most filers use commercial tax-preparation services like H&R Block, whose fees eat away a good chunk of the EITC. Families use commercial preparers because of the complexity of filing for the EITC, and because they either don’t know about or don’t have access to VITA. To claim the EITC, you don’t simply check a box on your tax form. It's much more complicated than that. IRS puts out a 52-page instruction booklet to help preparers make sense of all the rules associated with the EITC.

We estimate the costs of using a commercial tax preparer to be about $300. For a family in poverty or one using food stamps, $300 is by no means an insignificant sum of money. $300 equals three months of food stamp benefits—the average food stamp benefit is $100 per month, or a little over $1 per meal; $300 also equals 4,500 disposable diapers, 3 visits to a pediatrician for routine care, and 12 college application fees.

$300 is also the equivalent of what families in this income group are getting as their part of the economic stimulus package settled on earlier in the year. The $300 families save by using VITA instead of a commercial preparer is the equivalent of an economic stimulus package for them every year.

 

Given the importance of the EITC to low-income working families, we felt there was an excellent case to be made for showing the benefits of expanding VITA. We set out to see how much could families save if nationally VITA served 5% or 10% of all EITC filers? We don’t think that’s an unreasonable expectation. There are several areas of the country already doing it. Tulsa, Oklahoma, for example, consistently serves 15 percent of EITC filers there. Tulsa, like other cities, operates several VITA sites. Around the country, VITA sites are typically located in low-income communities and managed by area nonprofits, so they are going to be recognized by members of the community as a place that lends a helping hand, respected, and possibly even patronized by the same people who would go there for tax assistance. Libraries, child care centers, head start centers, schools: these are the kinds of facilities where VITA sites set up shop during tax season.

Based on our analysis, we found that nationally 10% of EITC filers using a VITA site would save $650 million dollars in commercial fees.

Vita_united_states

As part of the study, we also looked at every state and showed how much EITC filers in each one would save. We produced state fact sheets for all 50 states and the District of Columbia. Each one contains a graphic similar to the one above but with figures for that state, like the one below.

Vita_alabama_2   

Families keep more of their EITC credit when they get their taxes prepared at a VITA site. That money not only goes back into families’ pockets but spreads around the communities where they live, multiplying as it changes hands and turns over many times in the local economy.

Earlier this year, Congress authorized $8 million dollars for VITA programs that serve EITC filers, but that won’t be effective until starting next year. This is long overdue recognition of the value of VITA and the importance of the EITC in sustaining low-income, working families.

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