FREE TAX TIME SERVICES
Tax refunds are often the largest lump-sum payment that low-income households receive all year. This makes tax time a key moment for these families to establish healthy financial behaviors, pay down debt, save money and build assets for a secure financial future.
The federal Earned Income Tax Credit (EITC) is a refundable tax credit that can provide a family with approximately $3,000-6,000 or individuals with approximately $500, making it a vital source of financial relief. New York also has a state and city EITC. However, one in five eligible New Yorkers does not take advantage of these valuable tax credits. And more than three-fourths of those who do claim EITC benefits file their taxes using paid tax preparers — at an average cost of $250 — instead of taking advantage of the free services offered at Volunteer Income Tax Assistance (VITA) sites.
In Tax Time Services, the first project from Designing for Financial Empowerment, we explored how to expand uptake of the EITC by making free tax preparation services in New York City more effective and accessible.
With this goal in mind, Tax Time Services asked:
– How can we use the tools available to us to encourage more low-income New Yorkers to use existing free tax services and claim important credits such as the EITC?
– How can we utilize existing assets and knowledge of community members and service providers to enhance and expand those services to better serve their constituency?
In order to respond to these questions, the Department of Consumer Affairs' Office of Financial Empowerment together with Citi Community Development and the Design for Social Innovation and Sustainability (DESIS) Lab at the Parsons School of Design consulted with Food Bank For New York City, a premier provider of VITA services, in an effort to learn about the challenges that tax filers face and to explore potential solutions. The interdisciplinary team sought to expand the way free tax preparation services are delivered in the city, taking into consideration some of the underlying systemic and sociological factors, as well as the practical limitations of existing services.
THE EITC PROGRAM
The federal Earned Income Tax Credit (EITC) program was introduced in 1975 and underwent massive expansions in the early 1990s. The program was built on the idea that taxes paid by wealthier taxpayers can be redistributed to low-income households through tax transfers proportional to earnings, resulting in a negative tax (or tax credit) for those below a certain income line. The EITC can provide those with an adjusted gross income of $53,000 or less with a tax credit, rewarding work and creating an incentive to become or remain employed; it was intended to supplement asset creation and ultimately lift people out of poverty.
The EITC is a financial relief measure that millions of Americans have come to rely on every year. The widespread popularity of the program has led to the creation of an industry which has tailored products and services — both beneficial and predatory — to the specific needs of EITC recipients:
– For example, some paid tax preparers specifically target low-income filers and, although it is illegal to demand a percentage of the received tax credit, the tax preparation fee spent to receive the credit can be significant and dramatically reduces its financial effectiveness. In addition, filers may be charged fees for products or services such as refund anticipation checks, electronic filing fees, a separate fee for each tax form or schedule, an hourly rate for the time spent on the return, or fees based on the complexity of the return.
According to the IRS, the VITA program originated with the Tax Reform Act of 1969 as part of an emphasis on taxpayer education programs. Trained volunteers were able to prepare basic returns for free for low- to moderate-income individuals, persons with disabilities, the elderly, and those with limited English proficiency.
The NYC Department of Consumer Affairs Commissioner Julie Menin has identified the EITC as a crucial tool for combatting the growing financial divide in New York City. Commissioner Menin met the ambitious goal of 150,000 new tax returns filed via VITA sites in 2015, and hopes to continue to grow that number in 2016. As the city continues to grow the number of VITA filers, free services like VITA must be enhanced (through initiatives such as Tax Time Services) and expanded to better meet the needs of low-income New Yorkers.
Volunteer Income Tax Assistance (VITA) is a service that requires and leverages a large range of partnerships from local, state, and federal government offices to community-based organizations (CBOs), financial institutions, employers, and more. These organizations vary significantly in the volume of filers served, which ranges in New York from a few dozen filers to over 80,000. The provision of VITA services requires diverse partnerships and resources:
– Individuals and CBOs partner with the Internal Revenue Service (IRS) to become part of the VITA network and must adhere to ethical, quality, and other critical guidelines.
– VITA providers must then recruit, train, and manage volunteers and paid staff to operate the different sites throughout the tax season. All VITA volunteers and staff must complete an online ethics and standards of conduct training, and preparation staff undergo online and in-person training as well as an IRS exam which they must pass with a score of 80% or higher.
– To secure locations accessible to low-income New Yorkers eligible for free tax services, VITA providers partner with community based organizations, for-profit companies, and providers of rental space. Program planning, and in some cases program operation, takes place year-round.
– Providers also work with the IRS and other partners to secure the equipment and supplies needed to provide preparation services from diverse locations. These supplies range from laptops and printers to printing paper, intake forms, and pens.
– Food Bank For New York City, one of the largest civilian VITA providers in the country, operated roughly 70 VITA sites in the 2015 tax season with a large team of volunteers as well as paid staff.
Despite the size of VITA operations, many low-income individuals are still underserved, and existing services can be at maximum capacity during certain parts of the tax season such as January and April.
At the center of the fight to reduce income inequality and expand economic opportunity, the Office of Financial Empowerment (OFE) works to support low-income New Yorkers and communities in building wealth and improving financial capabilities.
OFE is the first local government initiative in the country with the mission to educate, empower and protect New Yorkers and neighborhoods with low incomes so they can build assets and make the most of their financial resources. OFE uses the tools of research, partnerships, policy, programs and services, financial products, and convening to advance its mission. OFE uses the tools of research, programs and services, financial products, partnerships, policy, and convening to advance its mission. In addition, OFE employs five core strategies:
- Boosting income and building assets
- Providing free, high-quality, one-on-one financial counseling
- Increasing access to safe and affordable financial services
- Advocating for consumers in the marketplace
- Empowering low-income neighborhoods to generate wealth
Food Bank For New York City has been the city’s major hunger-relief organization working to end hunger throughout the five boroughs for more than 30 years. Recognized by the Internal Revenue Service as one of the largest coordinators of civilian tax assistance in the country, Food Bank For New York City also provides free tax assistance services at locations citywide. In 2015 alone, Food Bank prepared more than 85,000 returns, resulting in over $140 million in federal and state tax refunds for working families.