The federal Earned Income Tax Credit (EITC) is the nation’s largest anti-poverty program for working families. Unfortunately, according to the IRS, between 12 and 18 percent of eligible Washington residents don’t apply, losing out on approximately $87.4 million each year. Recent Brookings Institution analysis lists Washington State as one of 17 states with the lowest federal EITC participation rate, providing impetus for Washington to promote the federal EITC and free tax preparation outreach and services.
To capitalize on unclaimed federal EITC dollars, CTED invests $50,000 in an annual public-private federal EITC outreach and free tax preparation campaign. Main campaign partners include the 14 local asset building coalitions, community action agencies and non-profits, United Ways, AARP and IRS. The Washington State Department of Social and Health Services (DSHS) has also helped cover some of the printing and mailing costs for outreach materials targeted to their clients. The statewide 211 public assistance call system serves as the main portal which refers thousands of callers to local free tax assistance and free online tax filing software.
IRS data from tax year 2006 show that of the total federal EITC eligible population, 57 percent used paid tax preparers, 3.4 percent of households used free tax preparation services provided by our coalitions, and the balance filed their returns themselves. It is difficult to tell how many of those households who self-filed did so as a result of CTED marketing efforts to advertise “icanefile.org”, a free tax filing option for low- and moderate-income families.
Efforts to reach the federal EITC population are hindered as the paid tax preparation industry lures those families during the holiday season with Refund Anticipation Loans (RAL) before the EITC campaigns kick-off in January. RAL are marketed under names such as Express Money, Instant Refund, and Holiday Loans. These names are misleading because they are not refunds; they are high interest loans which are based on the value of an anticipated refund. In tax year 2005, of the 124,000 households who received federal EITC 63 percent used a RAL. This trend hurts low-income families because they pay high-interest loans to get their own money back, depleting the financial benefit that the federal EITC is meant to provide.
2006 and 2007 Tax Year Campaign Activities
- 14 local federal EITC outreach campaigns provided local marketing and tax preparation assistance to the state campaign.
- The statewide 211 call system served as the main communications portal and referred 11,800 callers to local free tax assistance tax filing software.
- More than 850,000 bi-lingual in English and Spanish mailing inserts reached recipients of public benefits such as medical coupons, food assistance, long-term care providers, and foster parents. More than 130,000 postcards and 2,500 color posters were distributed to promote the federal EITC.
- A special multi-language flyer using eight languages was sent to 35,000 public assistance recipients who speak languages other than English.
2006 and 2007 Tax Year federal EITC Campaign Impact
Official IRS campaign data for 2007 are not yet available, but according to estimates, the coalitions prepared 68,086 free tax returns. Of these returns, 12,803 were for EITC returns representing nearly $25 million more in federal income to the state, a 23 percent increase over last year’s campaign.
Earned Income Tax Credit Results
In 2007, 68,086 free tax returns were prepared by volunteers of our local asset building coalitions which resulted in over $26 million infusion of federal EITC dollars in Washington State’s economy. Last year, 10,177 more free tax returns were prepared, which generated an additional $5 million or 23% increase in federal EITC over 2006.
Of the total 68,086 free tax returns prepared, 12,803 households claimed the EITC credit, which resulted in 983 additional EITC claims or an 8% increase over the same period last year. Electronic filings increased by 24 percent, and paper filings decreased by 27 percent, which suggest that local coalitions are continuously improving processes and increasing efficiency.
The increase of EITC claims can be attributed to a collaborative public-private partnership of new coalitions in EITC outreach campaigns. For the first time we are reaching previously unreached populations, especially in central Washington such as in Chelan-Douglas, North Columbia, Okanogan, and southwest Washington such as Cowlitz, Lewis, and Clark counties and educating those communities about the benefits of free tax preparation and federal tax credits for working families.
