This year, more than 27 million working families and individuals will get a financial boost from claiming the Earned Income Tax Credit (EITC). As the nation’s largest anti-poverty program, the working family credit supports those who often live paycheck to paycheck, for whom every dollar is precious.
While many families already benefit from the credit, this year millions of workers will qualify for the EITC for the first time due to changes in their financial and family status. These eligible filers may be unaware of the credit and inadvertently leave hundreds – if not thousands – of dollars on the table at tax time.
One in five eligible workers misses out on claiming the EITC, per Internal Revenue Service estimates. With the average Earned Income Tax Credit totaling $2,400 last year, that translates into billions of dollars – as much as $1.8 billion in California alone in 2012.
To help taxpayers learn about and claim credits, the IRS and its many partners are holding the 11th annual EITC Awareness Day on Friday, Jan. 27.
EITC Awareness Day is especially important this year for an additional reason. In addition to helping raise awareness among eligible taxpayers, it will let early filers know that their refunds will be delayed because of new legislation – the Protecting Americans from Tax Hikes Act of 2015, or PATH Act for short.
The PATH Act, beginning this year, requires the IRS to hold all tax returns claiming the EITC or Additional Child Tax Credit until at least Feb. 5. The delay is meant to allow more time to verify information on the returns to help detect and prevent fraud.
For the millions of families who benefit from these two programs, even a small delay in refunds could have serious consequences – especially for the early filers. As the “early filers” name implies, these are the people who prepare and file their annual tax return between late January – when the IRS begins accepting returns –and early February. About one-third of all taxpayers are early filers, with those claiming refundable tax credits such as the EITC and ACTC making up a large part of this group.
These credits often result in bigger refunds for those who need it most – refunds that can be larger than the family’s monthly take-home pay. It’s an important source of financial security for those who live paycheck-to-paycheck and therefore are motivated to file early.
What the refund delay means
To better understand how the refund delay affects early filers, Intuit provided the Urban Brookings Tax Policy Center access to quantitative data from filers who claim these credits using free tax preparation software provided through the FreeFile program. In addition, data from the IRS and a voluntary survey of Intuit customers revealed how people rely on these credits.
You can read the full report via the link: “Delaying Tax Refunds For Earned Income Tax Credit and Additional Child Tax Credit Claimants” but here are the findings that I believe are most relevant for public policy makers:
- Early filers often use their tax refunds quickly to pay down debt or for spending on necessities.
- Those with the largest refunds, families with children, for example, will likely be the hardest hit by the delay. They often don’t have quick access to cash and are likely to face financial hardships and turn to alternative financial services for help.
- Among those surveyed, nearly one-third said that even a one-week delay would affect their finances at least somewhat.
- Most surveyed families were not aware of the refund delay.
These findings underscore the importance of the National EITC Awareness Day campaign. They make it imperative to both help spread the word about the tax benefits available and make early filers aware of the refund delay. At the same time, the IRS wants to remind taxpayers that the new tax law applies to all tax preparation methods, and is urging taxpayers not to wait to file, which could cause further delays.
By partnering on this important campaign, the IRS, the tax industry, and taxpayer advocates can help secure the integrity and future of these important benefit programs and strengthen our tax administration system. Together, we can reduce fraud and abuse, while helping minimize the refund delay impact on the many honest and deserving taxpayers affected.
To get involved, please see the IRS’s EITC Awareness Day information at https://www.eitc.irs.gov/Partner-Toolkit/awarenessday