CAP's Experience Helping Low-Income Families File for the Earned Income Tax Credit (EITC)
From the Assets Alliance
CAP's Earned Income Tax Credit (EITC) Campaign is a massive local outreach effort designed to decrease poverty and expand economic development in Tulsa by helping low-income families receive the federal EITC.
CAP's EITC Campaign is one of the largest in the nation and is a model that has been replicated in more than 75 cities throughout the United States. Since its inception, the Campaign has experienced a more than ten-fold increase in the number of clients served, growing from 1,200 returns prepared in 1995 to 16,788 in 2005.
Likewise, the amount of refunds generated has increased more than 1,000% from $1.4 million in 1995 to $23.9 million in 2005. These numbers represent our steady growth as we have transitioned from a very small seasonal program to a much larger Campaign, requiring year-round activity.
The following statistics highlight our 2005 Campaign accomplishments:
- Total client returns prepared 16,788
- Total tax refunds generated to clients $23,855,454
- Average refund per client $1,299
- Average client household annual income $16,896
- Avg refund as percentage of avg client household income 7.7%
- Average EITC refund $569
In 2005, the average refund represented 9.6% of household income for the year, making the EITC a critical source of supplemental income support for low-wage workers. In addition to the actual amount of the refunds, we estimate that our tax work saved each client a minimum of $150.00 compared to the fees that a tax preparation firm would have charged - an additional savings of well over $2.5 million.
The effectiveness and impact of the EITC is hampered by two significant obstacles:
- awareness of the credit's availability, and
- the complexity of claiming the credit.
Many eligible low-wage workers fail to receive the tax credit and do not derive the intended benefits that they have earned. This is particularly true among people who are moving from welfare to work and who are new to the labor market. The IRS has estimated that up to 25 percent of eligible low wage-workers fail to receive the credit, either because they do not know about it or because they fail to file properly for it. A 2001 report published by the Urban Institute found that almost one-third of parents with income at or below twice the poverty level (the population most likely to be eligible) had not even heard of the EITC.
The problem is even worse for people for whom English is a second language. A 2002 report by the Urban Institute titled ''Who Knows about the Earned Income Tax Credit'' discovered that Hispanic parents were by far the least likely of any major racial or ethnic group to have heard about or claimed the EITC. The study suggests that the ethnic difference in knowledge about the program might arise at least in part from a language barrier. Although the IRS publication about the EITC is available in Spanish, the notice that the IRS sends out to potentially eligible tax filers who did not claim the credit is available only in English.
The second obstacle associated with the EITC is that claiming the credit can be extremely complicated and expensive. The credit is explained in a 56-page IRS instruction booklet that includes up to six different worksheets. The rules for claiming dependents for purposes of the EITC vary from those for claiming personal exemptions, child tax credits, or childcare tax credits. As a result of this complexity, along with the urgent need many low-income families have for expediting their tax refunds in the shortest time possible, private, for-profit tax preparation companies have targeted a range of costly services on EITC recipients.
CAP's EITC Campaign has gained national recognition. The IRS has recognized CAP's efforts as among the most innovative and successful in the country and is helping other communities replicate Tulsa's EITC Program. CAP's campaign was featured in an issue of the Annie E. Casey Foundation magazine, ''Advocasey,'' as a model program benefiting kids and families. The Annie E. Casey Foundation also funded the creation of a video highlighting CAP's EITC program.