A new report released today by Bread for the World Institute finds that low-income Americans could keep substantially more of their hard earned money if they were to use volunteer income tax assistance (VITA) sites to process their earned income tax credits (EITC) this tax season.
Low-income Americans pay an average of $300 each to commercial tax preparers like H & R Block and Jackson Hewitt to process the complex requirements of the EITC. The companies also encourage EITC filers to purchase short-term, high-interest refund anticipation loans, which include annualized interest rates of up to 700 percent.
"These fees are an unnecessary expense for the working poor and other low-income Americans," said Todd Post, author of the report, Asset Building at Tax Time: Scaling Up Volunteer Income Tax Assistance. "VITA sites are certified by the Internal Revenue Service and offer comparable services, including rapid refunds, for free."
The new report explores a sorely underused, but effective money-saving alternative and shows the impact of scaling up VITA programs. Nationwide, these programs run by non-profits serve just 1 percent of EITC filers. In 2004, that was 209,000 of the 21.7 million taxpayers receiving the EITC. Delaware had the highest rate of any state at 4.7 percent with Oklahoma following at slightly over 3 percent. All in all, VITA sites saved low-income taxpayers $62.7 million in 2004.
"The EITC raises nearly 4.5 million Americans out of poverty each year," said Asma Lateef, director of the 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 for a total of nearly $40 billion. EITC filers who paid commercial tax preparers spent nearly $3 billion in fees. The report estimates that if only 10 percent of all EITC filers used VITA sites, they would save a total of $650 million. Starting next year, the federal government will contribute up to $8 million in matching grants to VITA sites. Previously, only VITA programs that served the military and seniors received federal assistance.
"It is not enough to cover all EITC filers," said Post. "However, it is an important recognition of the importance of VITA and the EITC."