Earned Income Tax Credit

Asset Building at Tax Time: Scaling Up Volunteer Income Tax Assistance

Find out how the EITC helps low-income families by state: See our state fact sheets.

But filing for the EITC involves more than simply checking a box on one's federal tax form. The rules on qualifying for the EITC are so complex that the Internal Revenue Service (IRS) has produced a 52-page booklet of instructions; this complexity has led most EITC filers to rely on commercial tax-preparation services like H&R Block and Jackson Hewitt rather than doing their taxes themselves. But commercial providers charge significant fees and encourage taxpayers to take out Refund Anticipation Loans (RALs), loans which come with annualized interest rates of as much as 700 percent. ² On average, EITC filers spend $300 for commercial tax preparation – money that is needed for household expenses or could be saved for the future.³

There is an alternative: hundreds of Volunteer Income Tax Assistance (VITA) sites, run by nonprofits in communities across the country, offering free tax assistance to EITC filers. VITA sites have been providing services since before the EITC was enacted in 1975. VITA sites also provide taxpayers with financial education and information about a variety of asset-building opportunities. Studies by the U.S. Treasury and the Annie E. Casey Foundation show VITA sites to be more accurate than commercial preparers. ⁴

But altogether, VITA sites serve just 1 percent of EITC filers. In 2004, that was 209,000 of the 21.7 million taxpayers receiving the EITC. Starting in 2009, the federal government will contribute $8 million in matching grants to support the growth of VITA sites that work with EITC filers. ⁵ Previously, only VITA programs that served military personnel and seniors received federal assistance. This $8 million is not nearly enough to expand VITA to all who could benefit from it, but it is an important recognition of the importance of VITA and the EITC.

What would it take to scale up VITA usage to 5 or 10 percent of EITC filers nationwide? The National Community Taxpayer Coalition, an umbrella organization of 600 affiliated VITA sites and other asset-building programs, is studying that question.

Meanwhile, Bread for the World Institute has researched the other side of the equation: How much would EITC-eligible working families save if VITA were available to 5 or 10 percent of them? IRS data for 2004 suggests that VITA sites saved EITC filers $62.7 million in commercial tax preparation fees.⁶ Had VITA been scaled up to cover 5 percent of all EITC filers, Bread for the World Institute estimates that they would have saved $325 million. If VITA reached 10 percent of EITC participants, that savings would be $650 million. Bread for the World Institute's Web site has fact sheets which give details of these savings for all 50 states and the District of Columbia.

Here are the national totals for tax year 2004:

• Total EITC benefits received by U.S. taxpayers: $39,762,101,837.

• 17 percent of U.S. taxpayers received the EITC. ⁷
  • On average, 20.4 percent of rural households receive the EITC (the average credit is $1,850 per household) for a total of $7,835,200,000.  
  • On average, 16.3 percent of urban households receive the EITC (average credit is $1,831) or $31,926,900,000 total.

• 70.6% of U.S. taxpayers who received the EITC used a paid preparer. ⁸

• EITC recipients spent $2,893,867,920 on commercial tax preparation services.⁹

• 0.96% of EITC recipients in the United States used a community VITA site. ¹⁰

• EITC recipients who used community VITA sites saved $62,727,300 overall. ¹¹

Side-by-side state figures of EITC filers and VITA returns are included in this Microsoft Excel spreadsheet. 

1. Alan Berube and Benjamin Forman (2001), A Local Ladder for the Working Poor: The Impact of the Earned Income Tax Credit in U.S. Metropolitan Areas, Brookings Institution. 
2. Center for Responsible Lending, Overview of Refund Anticipation Loans.

3. Bread for the World Institute calculation based on $300 average tax preparation fee.

4. Center for Economic Progress (November 2007), Making the Case for Community VITA Funding.
5. Center for Economic Progress (January 4, 2008),  Statement by the Center for Economic Progress: Federal Government Commits $8 million to Advance Free Tax Preparation Programs for Low-Income, Working Families. 
6. Analysis of IRS SPEC Information Database, Tax Year 2004
7. William O'Hare and Elizabeth Kneebone (2007), EITC is Vital for Working Poor Families in Rural America, Carsey Institute.
8. Children's Defense Fund (2007), Keeping What They've Earned: Tax Credits for Working Families.  Based on Internal Revenue Service SPEC Information Database
9. Ibid.
10. Bread for the World Institute Analysis of IRS SPEC data.
11. Ibid.