For many Americans, the annual April 15 tax-filing deadline is a source of dread. But as some cities are showing, it also can be a hopeful time to help residents make a fresh start with their finances.
After all, this is the season when many low- to moderate-income people who are eligible for certain federal tax credits expect to get the largest single check they will see all year. Even for those who end up owing the government money, tax time is an opportunity to refocus on long-term financial goals.
Here are three ways city leaders are leveraging this time of year to promote financial empowerment with their residents.
[Get the latest innovation news from Bloomberg Cities! Subscribe to SPARK.]
1. Maxing out credits
The federal government offers working people with low and moderate incomes a tax credit worth, on average, about $2,500. Yet one in five Americans who are eligible for this Earned Income Tax Credit (EITC), or about 7 million people, fail to claim it. Collectively, they’re leaving billions of dollars on the table.
Anchorage, Alaska, is trying to change this. As part of a broader initiative around boosting economic opportunity, the city’s innovation team found that their state has the lowest EITC participation rate in the country. According to Ben Matheson, a data analyst with the team, too many Anchorage residents are foregoing money “they can put toward paying off debt, paying off bills, whatever they need to do.”
In order to claim the EITC, you have to file a tax return. Anchorage is not only encouraging people who qualify to file their taxes and get the credit, but also targeting a subset of this group — residents who have not claimed the EITC for a few years running. They can go back and file or amend tax returns from as far back as 2015, without penalty. People in this group could be looking at windfalls in the range of $10,000. “We see opportunities for taxpayers to claim life-changing amounts of money,” Matheson said.
The i-team is using ads on Facebook to identify residents who may fall into this category, and following up by phone to find out what’s been stopping them from filing. Some cite the difficulty of rounding up old documentation, for example, while others say the cost of tax preparation services is an obstacle. The team has been working one-on-one with a few dozen residents to help them navigate their individual situations, while pulling together broader learnings to apply toward a larger EITC push next year. (Click here to get updates on the Anchorage i-Team’s findings or to team up with them on the project.)
“There are ways to resolve these situations,” Matheson said, noting, for example, an Internal Revenue Service website where you can download missing W-2 forms from previous years. “It does take some time and effort and organization, but we think if it’s multiple years’ worth of multiple thousands of dollars in credits, it’s well worth finding the solution.”
2. Expanding free tax preparation services
Many residents with incomes below $55,000 can access free tax-prep help from trained volunteers. The program is known as VITA — it stands for Volunteer Income Tax Assistance. And while federal grants support a baseline of service, many cities bolster these efforts because the need for tax help is so great.
According to a recent brief from the Cities For Financial Empowerment Fund, cities are boosting VITA offerings in both direct and indirect ways. Miami, for example, directly funds staff to coordinate tax prep services, while Chicago channels its support through a local nonprofit. Cities are also boosting the marketing of VITA services through advertising and outreach. Louisville, Ky., Mayor Greg Fischer, for example, made a point to talk to the press in January about the availability of free tax help in the city.
As the CFE Fund’s brief put it: “These marketing and outreach efforts are a low-cost way for cities to leverage their ‘bully pulpit’ and ensure that residents know how to access free tax preparation services and claim all credits for which they are eligible.”
3. Connecting financial counseling to tax prep services
In Nashville, Tenn., the wait for free tax help at VITA centers can reach two hours. Rather than letting that time go to waste, the city is offering residents financial counseling while they wait.
The initiative is a collaboration between the mayor’s office and the United Way of Metropolitan Nashville. Part of what makes it work is that the United Way runs both the city’s VITA tax-help operation and its Financial Empowerment Center, which provides free one-on-one financial counseling as a municipal service. The financial empowerment center model, which started in New York City and has spread to cities nationally through an investment from Bloomberg Philanthropies, has been shown to help people with very low incomes to reduce debt, boost savings, and improve credit.
Nashville has paired its free tax prep with free financial counseling services twice this tax season.
The first time was back in February, when the majority of people coming in for tax help have a hunch they’re due a refund. “They know they’re getting it, and they want to get it as quickly as possible,” said Samantha Williams, Financial Empowerment Network Manager for the United Way of Metropolitan Nashville. “So our counselors worked with them on smart ways to use their refund — how to use it more intentionally.”
The second time those services get paired is right now — as the April 15 deadline approaches and more people coming in for free tax help expect to owe money. Williams said her three financial counselors will be freeing up more and more of their schedules for VITA walk-ins this week, and will have their doors completely open on Tax Day. It’s a good way for them to build a pipeline of new clients for their services.
“This time of year, we have folks who know they have a balance due — if they waited this long to file, they’re putting it off for a reason,” Williams said. “We’re able to help them assess where they’re at, whether they’re in a financial crisis or if they just want to get lined up toward a specific financial goal. Our service is goal-driven, so whatever the client presents with and wants to work toward, that’s where we go.”