About the EITC Initiative / Virginia CASH Campaign

Highlights for tax year 2006 (filing season January- April 2007)

• 22 coalitions, over 860 volunteers
• 11,223 federal returns, 2,927 EITC approved (26.08%)
• $10,652,075 total federal refunds
• $3,905,244 EITC refunds
• Over $2 million savings to taxpayer
• 9,633 state returns filed
• $1,625,535 in state refunds

Highlights for tax year 2005 (filing season January- April 2006)

• 18 coalitions
• Over 5,600 returns, 2,081 approved for EITC (37 percent)
• $6,599,000 total refunds
• $3,103,000 EITC refunds
• $1,132,000 savings to the taxpayers

Highlights for tax year 2004 (filing season January- April 2005) included:

• 17 coalitions, over 600 volunteers
• 5,151 returns, 2,006 approved for EITC (39 percent)
• $3,028,661 EITC refunds
• $772,650 savings to the taxpayers

Highlights for tax year 2003 (filing season January-April 2004) included:

• 8 coalitions
• 2,600 returns, 854 of which were approved for EITC (33 percent)
• $1,363,154 EITC refunds
• $390,000 savings to the taxpayers (not having to pay professional preparers)

The Earned Income Tax Credit (EITC) is a refundable federal income tax credit for low-income working individuals and families. Congress originally approved the tax credit legislation in 1975 in part to reduce the income tax burden on low-income workers, to supplement wages, and to provide an incentive to work. The credit reduces the amount of federal tax owed and in most cases results in a refund check. The EITC is the single largest federal program designed to lift people out of poverty. To qualify for the EITC, taxpayers must work full or part time and have earned income of at least $1. Income and family size determine the amount of the EITC. To qualify, taxpayers must meet certain requirements and file a tax return even if they did not earn enough money to be required to file a tax return.

22% of eligible Virginians do not take advantage of EITC. It is estimated that millions go unclaimed annually and in Virginia, the average credit received is about $1600.00. Workers may be unaware that the credit exists, unaware that they are eligible or they do not file taxes. They may have a language barrier, or may have just recently become eligible due to unemployment or underemployment. Whatever the reason it becomes important for the CASH Campaign to make a positive impact on the lives of working poor living in our Commonwealth. By calling the effort The Virginia CASH Campaign (CASH stands for Creating Assets, Savings and Hope), we will encourage financial literacy, savings and asset building as coalitions develop an outreach program to link EITC with other asset building programs. A local outreach effort is crucial to increasing EITC claims. The effort is most effective when information comes from trusted community sources (places of worship, schools, Community Action Agencies, Head Start, and DSS) where a client has an existing relationship.

In 2003, 38.2 billion dollars were refunded nationwide to 21.7 million taxpayers. 80% of the EITC refunds received stay within the local community. Unfortunately, 15-20% of taxpayers eligible do not apply because they don't know the credit exists or how to obtain it. Also, millions of taxpayers waste almost $2 billion from their federal refunds by paying commercial tax preparers hefty filing fees or by accepting a short-term loan deal called a "refund anticipation loan". (RAL) By developing local coalitions, low-income individuals and families can increase income by obtaining the EITC. By partnering with community based organizations and the IRS to develop Volunteer Income Tax Assistance (VITA) programs, more of those EITC filers can keep 100% of their refunds. By teaching taxpayers to understand and prepare their own returns, taxpayers can avoid relying on predatory assistance. The maximum refundable credit for the 2006 tax year is $4,536 for a family with two or more qualifying children, $2,747 for a family with one qualifying child and $412 if there are no qualifying children. Many taxpayers qualify for less than the maximum, depending on their income.

To qualify for the EITC, taxpayers must work full or part-time and have earned income during the year. If married and filing jointly, at least one spouse must work and have earned income. Earned income includes all taxable wages, salaries and tips received by an employee. Nontaxable earned income no longer counts as earned income. Income and family size determine the amount of the EITC. To qualify, taxpayers must meet certain requirements and file a tax return, even if they did not earn enough money to be required to file a tax return. For the 2006 tax year, to be eligible for a full or partial credit, the taxpayer must have earned income of at least $1 but less than $36,348 and have two or more qualifying children. With one qualifying child the income limit is $32,001 and with no children the limit is $12,120. Income limits are $2,000 higher if a couple's filing status is married filing jointly.

To maximize recovery of EITC benefits, community based efforts must focus on outreach and marketing within each community. Trained volunteers to assist low-income tax preparers file electronic returns, financial literacy training to link savings to economic growth, support from financial institutions to establish IDAs for EITC recipients, education for employers in providing advanced EITC through payroll are just a few initiatives that can be put in place to achieve the goal of increasing EITC refunds in your community. The community needs a network of local partners and volunteers such as Department of Social Services, Chamber of Commerce, Head Start, Community Action Agencies, places of worship, banks and credit unions, local governments, schools, IRS through the VITA program, HUD, and community service organizations. Businesses, employers, community leaders and companies interested in the financial health of the community should be willing to take on partnership roles in this important endeavor.

Goals for building the coalitions are:

• Promoting the EITC through education, outreach and awareness.
• Providing free tax prep to avoid the high cost of professional preparers and to avoid refund anticipation loans (RAL's)
• Promote financial opportunities to the unbanked

Consider a single working mother of two, earning less than $12,480 a year ($6/hr). In 2006, the maximum refundable credit is $4,536. The impact an additional $4,536 could have on this family is considerable; up to date rent and utilities, perhaps money in a savings account to build assets. The list could go on and on, and by building this coalition we can make that a reality for more working individuals and families.