Earned Income Tax Credit (EITC)

1. Earned Income Tax Credit (EITC) Presented October 8, 2015by Maggie Tarasovitch

2. The EITC Law “EITC, Earned Income Tax Credit, is a benefit for working people who have low to moderate income. A tax credit means more money in your pocket. It reduces the amount of tax you owe and may also give you a refund.” (IRS website)

3. Basic Facts • The tax helps the “working poor,” those tax payers whose limited work hours and low wages keep them in the low-income tax bracket • The refund depends on a tax payer’s: • Adjusted Gross Income (AGI), which is gross income minus specific deductions* that a tax payer is eligible to take • The number of (qualifying) children • * Common examples of deductions are “alimony payments made to a former spouse, contributions to certain retirement accounts (such as a traditional IRA) and the deduction for tuition and fees.” (Turbotax website)

4. Basic Facts • EITC Eligibility • based on AGI and Number of Children(Tax Filing for the Work Year 2014)

5. Basic Facts • EITC is acquired when tax payers fill out regular tax returns and complete an additional seven lines of information • Earnings do not include social welfare program, dividends, interest, and capital gains. • Earnings doinclude wages earned from self-employment income and regular income • Full or part time work

6. Example Family: Jessica Smith • Jessica Smith works as a cashier at McDonalds. She is a single-mother of two children. • FACTS: • Food-preparation sector employs 11 million people • Accounts for about 1 in every 11 jobs • Provided a median wage of only $9.09 an hour • Jessica, as full-time, year-round worker (at $9.09/hour) makes annual earnings of $18,180. • (Center on Budget Policy Priorities website)

7. Example One: Based on our example family, “Jessica Smith.”Graph generated by Center on Budge and Policy Priorities

8. Federal Tax Withholding “Qualifying persons who file federal tax returns get back some or all of the federal income tax withheld from their pay during the year. Even workers whose earnings were too small to have taxes withheld can get the EIC.” Jessica had: 907.50 + 1365.75 $2,273.25 in taxes withheld during the year. Thus her “extra income” is essentially: 5,387 ----> Full Amount she gets back from EITC - 2,273 ----> Amount withheld in taxes this year $ 3,114

9. History • 1975: EITC is proposed by Nixon but created and signed by President Ford in order to help alleviate the burdens of social security and Medicare taxes for low-income workers • 1970s - 2008: The credit is made permanent, adjustments were made regarding categories, the percentage of credit, and those eligible for the credit • 2013: Congress extended the 2009 American Taxpayer Recovery Act through 2017 • The 2009 Act essentially extended the EITC and added the “third tier,” or level, to help families with more than two children

10. Impact • In 2013, about 6.2 million people were lifted out of poverty, including about 3.2 million children. • Studies suggest that the EITC “increase(s) aggregate hours worked.” (Beverly, 2002). • “What research has shown, however, is that most EITC recipients only get the credit for two consecutive years or less. Many of them soon move up the income ladder and start paying taxes back into the system.” – The Washington Post • The EITC reduced federal tax revenue by $59 billion in 2012 whereas the cost of Supplemental Nutrition Assistance Program (food stamps) was $80 billion (Hungerford, 2013).

11. Federal vs. State • 24 states and the District of Columbia administered their own state EITCs (2014) • When you apply for the Federal EITC, you are automatically enrolled for the State • Federal refunds faster (about 2 weeks), and the State takes a little while longer • States typically calculate EITCs as a fixed percentage of the federal credit • Percent of Federal Credit for NYS: 30%

12. How do citizens apply for EITC?

13. “VITA is a free, IRS-sponsored program to help low and middle-income workers have their federal and State personal income taxes prepared and filed electronically at no cost.” • “VITA also ensures that workers receive all the tax credits to which they are entitled.” • (New York State website)

14. History of VITA • Gary Iskowitz at California State University Northridge started program with his accounting students to help the local community • Originated with the Tax Reform Act of 1969 as part of the increased emphasis on taxpayer education programs • 2007: IRS VITA Grant is created to provide funding to partner organizations, which enables Volunteer Income Tax Assistance (VITA) sites to extend services • Heighten quality control, improve accuracy of returns, enhance volunteer training

15. For-Profit versus VITA EITCoutreach.org

16. Why VITA Helps • Individuals save by not paying for tax preparation • Electronic filing is increasing at VITA sites and allows workers to get their money faster • Tax preparation volunteers are well trained and reduce the error rate

17. EITC & VITA in Syracuse

18. Problem & Evidence • Too few eligible citizens file for the EITC in Onondaga County • Total Filers in Onondaga County in 2013: 211,656 • Filers that are eligible for VITA services: 133,492 (63.07%) • Eligible Filers that used VITA services: 7,249 (5.43%) • Unknown Percent: Private sector filing & individual filing of the tax returns • * Those who are eligible are files who reported an adjusted gross income of less than $53,000 • **Data are based on 2013 tax return season Data are from the United Way, who received the data from the IRS

19. VITA in Syracuse: CA$H Coalition • CA$H stands for Creating Assets, Savings and Hope • Apart of the United Way • The primary focus is to collaborate with as many Onondaga County VITA site providers as possible in order to expand the scope and the efficiency of the VITA efforts in our region • There are three parts to these sites • Preparing taxes • CA$H Coach Volunteer gives Financial Education Literacy • Other providers of opportunities for low income citizens: health insurance navigators, credit unions, etc.

20. Value of EITC in Syracuse Value of Federal EITC : All County: $ 3,097,509 CA$H sites only: $ 2,576,685 Value of Fed & State EITC: All County: $4,130,012 CA$H sites only: $3,435,580 Average Refund per Filer: All County: $ 1,264 CA$H sites: $ 1,620 *2013 data

21. What Have We Done?

22. What We’ve Learned Causes of low EITC/VITA rates • Not enough volunteer tax preparers • Not enough VITA sites • Lack of knowledge among potential participants *Information is based on conversations with Site Coordinators and United Way * No “hard” data

23. What We’ve Done • Community Outreach Volunteer at VITA site (ACMG Federal Credit Union) LeMoyne College Tax Accounting Course Work with CA$H Coalition members Two highschools programs (Georgia, North Carolina) Implementation Created one-credit college course; 11 students enrolled • Train Tax Preparers, increase the number of SU students involved

24. What We Want to Do Implementation • Send Train Tax Preparers to already existing VITA sites in our community • Help generate publicity about the sites • Work with Project Advance to help this project become a state-wide effort • Long term: possibly create our own VITA site

25. Possible Positions Available for your Students ​​ Greeter: Requires a quick 10 question quiz online ("Codes of Conduct")(1) Greet patrons as they walk in(2) Being friendly, saying hello, distributing the first bit of paperwork the patrons must fill out, and answering questionsCA$H Coach: Requires a quick 30 minute orientation (Syracuse only, unless local United Way has a CA$H Coalition) (1) Help VITA participants complete a Saving Plan form  (2) Potentially answer some basic questions about accounts, money, and ways to saveTax Preparer: This role requires the IRS tax certification (1) Longest process(2) Reading information online and passing two "exams." There are sets of practice questions to help (3) Once this is complete, you volunteer at the VITA sites and help the low-income individuals file their taxes(4)This requires the most work, but it would look great on a resume Continued on next slide

26. Possible Positions Available for your Students ​​ Publicity & Community Outreach(1) Create flyers (2) Reach out to local community centers, churches, etc. (3) Distribute the informationOther: (1) Reach out to your local United Way or other organizations* (2) Ask what would be most beneficial for the sites that your students could do • *Patti Faulkner offered to help connect any interested teachers with the local sites that she is in connection withIRS, SPEC (Stakeholder Partnership, Education and Communication)

27. Questions?

28. Thank you.