Some tax preparers call it "the big money moment." They're talking about the time of year when consumers receive their tax refunds. The lump sum, especially if the individual qualifies for the Earned Income Tax Credit (EITC), is often the largest payment they'll get all year long, says Molly Barackman-Eder, senior manager for financial capability at NeighborWorks America. But even if they don't get a tax refund — even if they owe money — tax time is still a big money moment, because it's a chance to look over finances and to adjust them, Barackman-Eder says.
Each year, NeighborWorks network organizations help consumers go over their finances by offering free tax preparation through services like Volunteer Income Tax Assistance (VITA). In 2019, 44 network organizations provided free tax preparation for 42,642 clients.
The savings can be as much as $250 for the tax preparer's labor alone, says Barackman-Eder. That's substantial, especially since most of the people eligible for free tax help have an income of $56,000 a year or less. But there's advice, too, which can help clients prepare for the years ahead.
"We're trying to give them meaningful information," says Barackman-Eder, who herself volunteers as a tax preparer for a VITA program once a week.
Tax preparers can look ahead to see if children are aging out of being listed as dependents, for instance. They can talk about differences that a new job might make. They can talk about withholdings and they can talk about savings.
Saving your refund
Savings can be hard for someone living paycheck to paycheck. "Car things happen," Barackman-Eder says. "Medical things happen." Tax season, which runs from January until taxes are due on April 15, can be a time to focus on setting a little bit aside."We try to educate people," says Michelle Martin, director of economic and community development for NeighborWorks Umpqua in Roseburg, Oregon. The organization became a VITA site after The Ford Family Foundation reached out to them in 2016, hoping they could set something up that was accessible to consumers, particularly in Douglas County, Oregon, which was at the bottom of counties using the EITC, a refundable tax credit for earners with low to moderate incomes. They engaged in peer learning through a contact that Martin had met at a NeighborWorks Training Institute. With the guidance of an IRS tax specialist, they opened two VITA sites for the following tax season.
They prepared taxes for 500 people the first year — 10 times what a traditional site does in its first year, Martin says. "We dove in neck-deep. Our volunteers were phenomenal. Last year we did just shy of a thousand returns." Had bad weather not closed their offices for more than a week, they would have done more, she says. From their first year of operation to their second, they more than doubled the child tax credits and EITCs that were claimed. Martin says people who earn below the income that requires a tax return sometimes don't file, not realizing that they may qualify for refundable tax credits. "There's value in filing, even if you just get back enough for a dinner out. You may also qualify for these other credits that you won't get unless you file your taxes." Her volunteers try to educate the population on that, as well as about what they can expect in the future and about savings.
As members of the Tax-Time Savings Cohort, they try to encourage people to take a portion of their tax returns and put it into savings. For a pilot program this year, they're matching up to $200 for 50 people to encourage an emergency fund. If results are good, she says, they'll look at continuing the program next year.
NeighborWorks Umpqua also has a Dream $avers program, an Individual Development Account (IDA) program to help residents build savings that can be used for home maintenance, job training and more.
"We hope that by helping members of our community access those refundable credits such as the EITC that we can help bolster our low-income families' and individuals' financial situations and increase the economic vitality of those communities we serve," Martin says.
Making a difference
Foundation Communities, also a NeighborWorks network organization, has its tax prep sites in Austin, Texas, where more than 600 volunteers prepare taxes for just over 20,000 people per year.The organization has been a VITA site for 16 tax seasons, says Kori Hattemer, director of Prosper Programs for Foundation Communities. Like NeighborWorks Umpqua, they began to help their community access Eared Income Tax Credits that had been left on the table. Once they started, she says, it led them to introduce related services to help with college financial aid forms and health insurance through the Affordable Care Act, for instance.
In 2019, the tax forms they prepared resulted in $35.4 million in refunds, $14.2 million of that in EITCs and another $13 million in child tax credits. "That goes directly to underserved community members," Hattemer says.
The tax returns, which average $2,000, "make a big difference," Hattemer says. "This contributes to our mission in a really big way."
Are you a NeighborWorks network organization interested in tax prep? Hattemer suggests first seeing if there are VITA sites in your region. If so, see how you can support them, she says. And make sure to get information about those sites to your residents and community.
If there aren't any sites nearby, then it's time for research, Hattemer says. It isn't easy to launch a VITA program. But there's lots of institutional knowledge and expertise across the country. "Having a resource that is going to make sure that you get the maximum refund possible — and not charge you anything — is incredibly valuable for underserved communities."
Further reading: The Consumer Financial Protection Bureau offers this toolkit on how to use a tax refund to build an emergency savings account.
Editor's note: As organizations respond to the spread of the COVID-19 virus, they may make changes in the hours or manner in which free tax help is given, so as to limit contact with clients. Please check your local VITA site for more information.
