Report urges low-income Americans to use volunteer income tax assistance
Tax preparation alternative offers relief for the poor at tax time
Presbyterian News Service
Louisville KY
April 9, 2008
by Evan Silverstein
LOUISVILLE — A report issued this week by the Bread for the World Institute finds that low-income Americans could keep substantially more of their wages by using volunteer income tax assistance (VITA) programs to process their earned income tax credits (EITC) this tax season.
Low-income Americans pay an average of $300 each to commercial tax preparation companies like H&R Block and Jackson Hewitt to process the complex requirements of the EITC, which is a refundable tax credit that low-income households receive when filing their federal income tax return.
Commercial tax preparers also encourage EITC filers to purchase short-term, high-interest refund anticipation loans, which include annualized interest rates of up to 700 percent, according to a Bread press release.
But, according to the new report, there is an alternative. Hundreds of VITA programs operated by nonprofit organizations in communities across the country offer free tax assistance to EITC filers.
VITA programs also provide taxpayers with financial education and information about a variety of asset-building opportunities.
"The fees by [commercial tax preparers] are an unnecessary expense for the working poor and other low-income Americans. VITA programs are certified by the Internal Revenue Service and offer comparable services, including rapid refunds, for free," said Todd Post, author of the report, "Asset Building at Tax Time: Scaling Up Volunteer Income Tax Assistance."
The report is available online.
It explores the underused money-saving tax preparation alternative and shows the impact of scaling up VITA programs, which serve just 1 percent of EITC filers nationwide. In 2004 that totaled 209,000 of the 21.7 million taxpayers receiving earned income tax credits.
The Bread for the World Institute, in Washington, DC, studies hunger and development issues and seeks justice for the poor. It is a partner of the Christian anti-hunger group, Bread for the World, which receives support from the Presbyterian Church (U.S.A.).
The earned income tax credit mostly helps families with children. In 2005 a family with one child could receive a maximum credit of $2,662 and a family with two or more children $4,400. The maximum a single person could receive was $399.
"The EITC raises nearly 4.5 million Americans out of poverty each year," said Asma Lateef, director of the Bread for the World Institute. "It is the most effective federal anti-poverty and work-support program, and enjoys wide bipartisan support in Congress."
In 2004, 17 percent of U.S. taxpayers received the EITC and the credits totaled nearly $40 billion. EITC filers who paid commercial tax preparers spent nearly $3 billion in fees. The institute's report estimates that if only 10 percent of all EITC filers used VITA sites, they would save a total of $650 million.
The Institute's Web site has fact sheets which give details of the savings for all 50 states and the District of Columbia.
Starting next year, the federal government will contribute up to $8 million in matching grants to VITA programs. Previously, only VITA programs that served the military and seniors received federal assistance.
"It is not enough to cover all EITC filers," Post said. "However, it is an important recognition of the importance of VITA and the EITC."
