Make Tax Time Pay! Promote the Earned Income Credit and the Child Tax Credit

Make Tax Time Pay!Promote the Earned Income Credit and the Child Tax Credit Presentation by: John Wancheck Organization: Center on Budget and Policy Priorities www.cbpp.org Phone: 202-408-1080 Email: wancheck@CBPP.ORG

What if, instead of misery at tax time…you find you’ve got a 40% raise?

That’s the boost many workers can get by claiming tax credits they’ve earned!! The Earned Income Credit can mean extra money for many families, for example: • Families raising two children with income between $11,300 to $16,800 can get $4,500*. (*Not all workers get this amount, but this year families can expect, on average, $2,200.)

Wait — there’s more! Some families can get Extra Credit through the Child Tax Credit! • A family could also qualify for a Child Tax Credit worth up to $1,000 per child. • Workers who earn over $11,300 in 2006 can get a refund even if they don’t owe income tax, (amount is based on a % of their income above $11,300).

Here’s how it can really add up! Mary earned $18,000 in 2006 and is raising three children under age 17. She owes no income tax. She gets an EIC worth $3,860. She is also eligible to receive a CTC refund of $1,000. Together they add up to a total tax refund of $4,860!

The EIC is our most effective anti-poverty tool for families! In 2003, the EIC lifted 4.4 million individuals — including 2.4 million children — out of poverty. • The EIC can turn a $6 per hour job into an $8 per hour job.

The EIC Brings Federal Dollarsto Local Communities • 22.1 million families and individual workers claimed the EIC in 2004 • The EIC was worth over $39 billion in 2004 • Estimates are that 15%-20% of eligible workers don’t claim the EIC — these dollars are lost to them and their community

Helping Working Families Transcend the Poverty Line, 2005 Estimated Poverty 107% Line for Family of Two EITC (including 91% $2,662 one child) $13,323 Food Stamps Food Stamps $2,040 $2,040 Annual Income Full-time Minimum Full-time Minimum Wage Job* (less Wage Job* (less withholding) withholding) $9,512 $9,512 Without EITC WithEITC

The EIC: • Reduces the tax burden on low-wage workers • offsets income and payroll taxes • Supplements wages • Provides a work incentive

How much can eligible workers earn? • A worker raising one child, who earned less than $32,001 in 2006 can get an EIC up to $2,747. • A worker raising two or more children who earned less than $36,348 in 2006 can get an EIC up to $4,536. • A worker not raising children, who is between the ages of 25 and 64, and earned less than $12,120 in 2006 can get an EIC up to $412. (Income limits for married workers are $2,000 higher than these amounts) • Investment income cannot exceed $2,800.

No children One child Two or more children The Federal Earned Income Tax Credit in Tax Year 2006 $5,000 Maximum benefit $4,536 $4,000 Maximum benefit $2,747 $3,000 Credit Amount $2,000 Maximum benefit $412 $1,000 $0 $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 Note: Married couples with income in the phaseout range qualify for a higher credit than single parents — shown by dashed lines.

EIC Benefits for Tax Year 2006at Various Income LevelsThis is not a tax table. Do not use this table to complete income tax returns.

The Tax Credits and Other Public Benefits • EIC – not income for specified federal programs, including food stamps, SSI, public housing, Medicaid; states determine whether EIC counts for other programs including TANF, child care, energy assistance. • CTC – not income for any federal, state or local program financed even in part with federal funds. Income

Why is outreach needed? • The eligible population is ever-changing, especially in a changing economy: • Workers not eligible in the past who lose their jobs mid-year could become eligible. • Workers just entering labor force may not know about the credits. • Some groups are at greater risk of missing out on the tax credits.

What do research studies tell us? • Participation in the EITC nationally is probably around 80% to 85% - higher than in traditional means-tested programs • Participation in the EITC is not uniform; Hispanics seem less likely to participate, also workers not raising children. • About one-third of EITC filers each year did not claim it in the previous year.

Who is at risk of missing out on the EIC and CTC? • Workers not required to file returns • $16,900 for a couple; $10,800 for head of household; $8,450 for a single filer (2006) • New employees; employees making the transition from welfare to work • New parents – including foster and adoptive parents • Divorced or separated custodial parents

The High Cost of Commercial Tax Preparation When it’s time to file a tax return, many workers seek help from a commercial tax preparer. • 72 percent of EIC claimants use commercial tax preparers. • Average fees range from $85 - $120 for e-file.

Why would I not want a “quick refund?” “Quick Refunds” are risky • Very high-interest loans (can be over 180 percent interest rate) • Can be an additional $80 fee or more • Some preparers charge a percentage of the EIC refund, driving fees even higher • No guarantee refund will equal the loan amount

Promote free tax preparation assistance • Provide alternative to commercial tax preparers • Volunteer Income Tax Assistance (VITA) provides free tax filing help for low-income workers at community sites. • Expand and improve VITA • Recruit community volunteers to be trained by IRS. • Community groups needed to host additional sites; more accessible sites. • More sites needed that can provide e-filing (IRS will provide software!).

Where do You Come In? Community Outreach Partnerships • Help build partnerships to connect with eligible families and individuals: • Nonprofit health and human services providers • Community organizations and institutions • Faith-based groups • Civic/service organizations • Labor unions • State and local government agencies (esp. public benefits) • Employers and local businesses • Media • IRS

Involving Utility Companies • EIC stuffers in customer bills and newsletter articles • Outreach to customers risking shutoff • Include EIC info in LIHEAP outreach activity • Sponsor and support VITA sites: PSAs, banners, billboards • Surveys indicate EIC recipients use tax refunds to pay overdue bills

Distribute tax credit info and direct workers to free tax filing Conduct outreach events and create opportunities to file Get in position to enrich and sustain outreach efforts in the future Spectrum of Outreach Approaches Building a Tax Credit Outreach Campaign Expand and improve free tax filing sites Engage others in reaching out through their own networks

How Many Workers Claim EITC in Your Community? • EITC Claims: State, City, County • Data at Zip Code Level • Number of Claims, Dollars Claimed • Number of EITC Claims with a Refund Loan • Guide to estimating # eligible not claiming • Brookings Website: www.brookings.edu/urban/eitc

State EITCs • 19 states and D.C. enacted state EITCs, which “piggy-back” on the federal credit and further benefit lower-wage workers • states establish the credit as a percentage (anywhere from 5% -- 50%) of the federal EITC • 14 states provide the EITC to workers who earn too little to owe income tax

Make Tax Time Pay! Promote the Earned Income Credit and the Child Tax Credit