by Laura McComas
January 28 will mark the fifth annual Earned Income Tax Credit (EITC) Awareness Day, an effort by the IRS to encourage local governments, community organizations and other stakeholders to bring attention to the EITC and opportunities for free tax filing services through Volunteer Income Tax Assistance (VITA) sites.
As tax season gets underway, cities have a valuable opportunity to help low- and moderate- income residents augment their incomes. Families with two children that earned less than $40,363 in tax year 2010 (or less than $45,373 for married workers) are eligible for a credit of up to $5,036.
A Decade of City-Led EITC Campaigns
Over the last 10 years, NLC's Institute for Youth, Education and Families has assisted dozens of cities in implementing EITC outreach campaigns. In that time, the number of communities with city-led EITC campaigns has increased from 10 in 2001 to approximately 160 in 2010.
However, an estimated one in four eligible families still fails to claim the EITC every year because residents may not know they are eligible or how to claim the credit. When large numbers of eligible residents do not file for the EITC, their communities miss out on an opportunity to bring millions of dollars into the local economy.
For the 2009 tax year, nearly 26 million EITC tax returns were filed, paying out a total of $57.9 billion in benefits. On average, families received approximately $2,000. For instance, the City of Boston's EITC campaign filed 12,555 free tax returns through their VITA program and returned more than $18 million in federal tax refunds to local residents.
Treasury Department Offers New Way to Save Refunds
Through the EITC and other tax credits, low-income families may receive up to 20 percent of their annual income at tax time. However, many of these families do not have a bank account or access to other mainstream financial services, and are therefore at risk of losing a sizable portion of their tax refunds to check cashers and refund anticipation loan providers.
To address this challenge, many VITA sites now connect tax filers with safe, affordable bank accounts, low-cost alternative refund anticipation loans, financial education and credit counseling.
Some EITC campaigns enable unbanked tax filers to deposit their refunds onto prepaid debit cards. Recognizing that this option has successfully helped unbanked residents safely access and manage their tax refunds, the U.S. Department of the Treasury is launching a new pilot initiative to provide a select group of low-to-moderate income taxpayers with the option of directly depositing their 2010 tax refund onto a Treasury-approved prepaid debit card. The MyAccountCard Visa Prepaid Card Tax Time Program will mail letters with information about the MyAccountCard to approximately 600,000 unbanked and underbanked individuals across the country, inviting them to sign up for the cards. Recipients will be given a unique registration code that they may use to sign up for the program online or over the phone.
The MyAccountCard is low cost and reloadable, meaning cardholders can use it to deposit and store money, make purchases, pay bills and withdraw cash. The program will not only provide financially underserved residents with immediate access to their tax refunds and the opportunity for long-term usage of a safe financial product, but will also help streamline the often cumbersome delivery of tax refunds through paper checks.
The Treasury Department's pilot program will test different variations of prepaid cards, some with a savings option and some with a small monthly fee. The pilot will also assess different outreach messages to facilitate participation, the success of the card accounts for distributing tax refunds, participants' continued use of the cards and which features of the cards are the most attractive to participants.
As this model is tested, city leaders may incorporate prepaid debit cards as a valuable tool in their EITC campaigns and asset-building strategies. For the coming tax year, city leaders and local EITC campaigns can encourage tax filers invited to participate in the Treasury Department program to use the prepaid card option.
Details: To download NLC's toolkit for municipal leaders on Maximizing the Earned Income Tax Credit, visit www.nlc.org/iyef/eitc. For more information about city-led EITC outreach campaigns, contact Sarah Bainton Kahn at (202) 626-3044 or firstname.lastname@example.org. To learn more about the MyAccountCard program, visit www.MyAccountCard.gov.