Magazine article Policy & Practice

Getting Money to the Workers

Magazine article Policy & Practice

Getting Money to the Workers

Article excerpt

Preparing income tax returns can be daunting, even for those who have become used to the annual experience. For those families new to the job market, however, not understanding tax returns can be costly, both in lost credits and in fees paid to tax preparation firms.

It was for this reason that Colgate University students volunteered to get into the tax return preparation business, an endeavor that helped 127 low-income families in rural, upstate New York take advantage of the Earned Income Tax Credit (EITC).

Reams of paper have described the effectiveness of the EITC, frequently referred to as one of the most effective antipoverty programs, lifting more children out of poverty than any other government program. According to a recent Brookings Institution report, EITC is the largest federal aid program targeted to the working poor, with nearly 20 million families benefiting from the credit annually.

Getting into the Tax Return Business

Because the EITC puts money into the pockets of low-income working families (and the communities they live in), a few years ago New York state encouraged some of its counties to develop Voluntary Income Tax Assistance (VITA) sites in local social services offices.

At these VITA sites, tax preparation and electronic filing are provided free to local, working public assistance recipients.

Brian J. Wing, commissioner of the state Office of Temporary and Disability Assistance, the agency responsible for cash assistance programs, said the idea for providing tax preparation services came from the fact that income tax returns can be confusing for families new to the workforce and that the EITC has proved its worth in helping families move from welfare to work.

"Welfare reform isn't just about getting people off the rolls, it's about helping them even after they get a job. When you combine EITC with the array of benefits available to low-income working families, you not only have a powerful incentive to leave welfare behind, you have programs that actually reward work," said Wing.

New York is one of 16 states that offer earned income credits through its tax codes. The state credit was 7.5 percent of the federal credit when first introduced in tax year 1994. Under Gov. George Pataki, the credit has risen to 30 percent of the federal credit for 2003, making it among the most generous in the nation. In New York the combined credits can total $5,278, the equivalent of an extra $100 a week.

The decision by Colgate University to join with the Madison County Department of Social Services (DSS) and the Community Action Program (CAP) of Madison County on the VITA site had its genesis in a collaboration the entities worked on about three years ago, a welfare leavers study for the county.

"We shared our findings with the state, and then realized that what was missing from our study was the EITC," said Mike Fitzgerald, director of economic security with the Madison County DSS. "We talked about workers' comp, unemployment, day care, and other benefits, but we did not include EITC. The state suggested we participate in a VITA program, and Colgate and CAP said it was a good idea."

How They Did It

Moving to establish a VITA site was one thing, finding enough volunteers to capably handle the work was another. Colgate had the solution thanks to Jill Tiefenthaler, an economics professor who worked on the leavers study. Tiefenthaler wanted to do a follow-up to the leavers study to target the working poor, and the professor had a willing work crew in her economics classes.

"I had some volunteers from a sociology class, but mostly the students were economics majors that I recruited. Economics majors tend to have the skills we needed to do the tax program-understanding numbers, and being good with spreadsheets and computer software," said Tiefenthaler.

Armed with materials provided by the Internal Revenue Service (IRS), 40 student volunteers spent their Christmas break studying workbooks and preparing for a test that would certify them to prepare returns. …

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