Every year tax credits provide tens of billions of dollars to low and moderate income families across the nation. Indeed, the Earned Income Tax Credit is one of the largest single benefit programs that exist for working families in the US.
Nevertheless, each year 20% of these resources remain unclaimed. Still more families fall victim to predatory lending through paid tax providers.
Single Stop USA is in a unique position to bridge the gap between working families and the resources they need and deserve. In 2010, Single Stop helped over 71,000 taxpayers access $116 million in valuable tax credits and saved them over $14 million in tax preparation fees through Free Tax Preparation.
Free Tax Preparation is an essential part of the Single Stop model. Each tax season low and moderate income families across the country are eligible for billions of dollars in tax credits, which have been designed to provide a critical influx of cash to families in need. In 2005, more than $51 billion dollars of Earned Income Tax Credit (EITC) and other tax credits went to low income workers and their families. Accessing these tax credits, which average from $2,000-$4,000 for families with children, is a major stabilizing force in their lives and often makes the important difference for families teetering on the brink of economic crisis.
Unfortunately, families often face obstacles accessing these tax credits. Some do not realize they are eligible for such large tax credits. Others are daunted by the complicated tax return process or may incorrectly assume they owe money to the IRS. As a result, every year an estimated 15-20% of all national EITC money remains unclaimed. In the absence of free tax preparation services, many low and moderate income taxpayers are forced to work with paid tax preparers. These paid preparers often charge as much as $200 to prepare even the simplest of returns. Tax payers are then marketed many substandard financial products like Refund Anticipation Loans (RALs) , which are loans with interest rates ranging from 40% to 700% based on the tax-payers' anticipated returns. This kind of predatory lending can leave tax payers saddled with more debt while greatly reducing the impact of their tax credits.
The Earned Income Tax Credit, or EITC, is a fully refundable federal tax credit for low to moderate income individuals and families. It is one of the largest benefit programs for working families that exists. Every year families that meet eligibility requirements can receive thousands of dollars through the EITC by filing their taxes. Many states also offer their own version of the EITC in addition to the federal tax credit. This increased income not only helps avert economic crisis in the short term, but also puts parents and children on the path to a better future. For example, evidence exists that the EITC has substantially increased single mothers' employment rates. Likewise, a $1,000 increase in family income has been shown to improve children's test scores in math and reading. Evidence also shows that an increase of $1,000 in family income increases a child's future income by .36%.
Single Stop can help by providing families with trusted free and lowcost tax preparation services that allow them to access the EITC and other tax credits, which enable them to make ends meet. Simultaneously, Single Stop works with taxpayers to determine whether or not they are eligible for much-needed resources such as Food Stamps, health care, child care and other important services like legal counseling and financial coaching. By taking advantage of the tax preparation moment, Single Stop provides these services in an integrated way. Single Stop hopes to increase the impact that our interventions have by allowing families to access multiple benefits and services.
The free tax preparation initiative is only one facet of Single Stop's model, and we are currently replicating this successful model throughout the country. We currently have free tax preparation campaigns in California, New Mexico, New Jersey and New York. Our scale gives us a national laboratory for research, cross comparison and the establishment of best practice throughout our sites. Most importantly, we have a unique opportunity to lift hundreds of thousands of Americans out of poverty and help them on the path to self sufficiency.
