Why Volunteer with VITA?

The Volunteer Income Tax Assistance program, an IRS-sponsored program that the North Penn United Way is currently recruiting volunteers for, provides free tax preparation services to area individuals and families earning less than $55,000 this year.

Did you know that a huge part of the VITA program is also ensuring that low to moderate income working taxpayers receive the full tax credits they’re eligible for? Rather than losing part of the credit paying for preparation fees, loan fees (refund anticipation), and other fees, VITA clients can put the full credit toward whatever they’d like to: whether it be saving, paying off debt, or household bills.

Many VITA clients (individuals and families making less than $55,000/year in earned income and less than $3,100 in investment income/year) qualify for the federal Earned Income Tax Credit. The EITC is one of the largest anti-poverty programs—it reduces taxes and can result in a refund for eligible working individuals and families. For those who meet the guidelines, a tax refund can be increased for tax year 2010 from $1 to more than $5,666.

[To view details about determining EITC eligibility, please visit www.irs.gov and search “EITC,” or utilize the EITC Assistant option (this assistant is currently available for tax year 2009).]

EITC is making a difference. For tax year 2008, the IRS reports that over 24 million people nationwide received nearly $50 billion in EITC ($1.6 million returned to EITC recipients in Pennsylvania alone). Incredibly, the EITC has lifted five million people, half of them children, out of poverty each year (also according to an IRS report).

EITC’s positive effects are not limited to the financial status of individuals and families. According to a 2009 article by the Children’s Defense Fund, “by boosting a family’s ability to provide food, clothes, books, shelter and other items that contribute to a child’s development,” academic achievement among children whose families receive this credit increases (CDF 1). These children have higher future earnings to look forward to, a reduction in stress levels, and healthier “psychological well-being of the entire family” (CDF 2).

The IRS and its partner agencies are working to educate the public about the credit. But not all taxpayers claiming the credit have access to or take advantage of free tax preparation services. Therefore a portion of this potentially life-changing tax credit does not always remain in the hand of the taxpayer it is meant for. Instead, many taxpayers pay to have taxes filed, take out Refund Anticipation Loans and use Refund Anticipation Checks—a portion of these tax credits pays for these services. Refund Anticipation Loans are “extremely high cost loans secured by the taxpayer’s expected refund—loans that last 7-14 days until the actual IRS refund repays the loan” (National Consumer Law Center). Associated with these loans are loan fees, tax preparation fees, and potentially 3-digit APR rates for loans that are not repaid (for example, the IRS refund is not as large as was expected).

A New York City Habitat for Humanity article on these loans reports that “at the top of the target list [for these loans] are families and individuals who claim the federal Earned Income Tax Credit (EITC) (New York City Habitat for Humanity). And these lenders tend to succeed:

A report by the IRS SPEC Information Database for Tax Year 2006 shows that 66% of EITC recipients in Philadelphia paid preparers to file their tax returns and 26.6% of taxpayers claiming EITC took out a Refund Anticipation Loan.

The VITA program ensures that EITC is returned to eligible VITA clients— people that it is intended to benefit (and who need it). The tax credit cannot help in the way that it is intended, to fight poverty, if portions of the credits are paying for tax preparation, loan fees, and loan APRs.

VITA eliminates the need for paid tax preparation and for Refund Anticipation Loans. VITA clients can potentially receive their tax refunds within 4-10 days—returns are filed electronically. The VITA program in the North Penn and Indian Valleys, supported by the North Penn United Way and Greater North Penn Collaborative for Health and Human Services, assists clients in easily opening a bank account for direct deposit of a refund (which also speeds up the process of receiving the refund).

In 2009, the VITA program returned $535,000 in federal and state refunds to the North Penn and Indian Valley communities and over $3.4 million to Montgomery County. Families and individuals in these areas saved over $84,375 in tax preparation fees.

Want to help?

You can. Volunteer to be a greeter/screener, tax preparer, site coordinator, quality reviewer, interpreter or budget coach. For volunteer opportunity descriptions, please see the below post about volunteering with VITA. All positions are essential to the program’s ability to assist low to moderate income taxpayers and keep them from losing their money to tax services fees.

To volunteer, please contact Christa Detweiler at c.detweiler@volunteermontco.org or 215-855-3002.

Sources:

“Avoiding the Pitfalls of Refund Anticipation Loans.” Children’s Defense Fund. March 2009. http://www.childrensdefense.org/child-research-data-publications/data/ral-report-2009.html

National Consumer Law Center. http://www.nclc.org/.

“Refund Anticipation Loans.” New York City Habitat for Humanity. http://www.habitatnyc.org/pdf/advocate/covenant2008/RAL_factsheet.pdf