Free Tax Assistance and the Earned Income Tax Credit: Vital Resources for Social Workers and Low-Income Families

Every year, nearly two-thirds of families with low-to-moderate incomes collectively lose billions of dollars to the asset-stripping industry. For example, in 2004, more than two-thirds of Earned Income Tax Credit (EITC)--eligible tax filers paid out over $3 billion to tax preparation companies in the form of fees (Children's Defense Fund, 2007; Internal Revenue Service [IRS], 2008b). The exorbitant fees from refund anticipation loans (RALs) with high annual percentage rates (APRs) and other associated costs yielded big profits for the tax preparation industry in one year, reaping approximately $1.5 billion from the EITC program (Berube, Kim, Foreman, & Burns, 2002; Keeley & Ludwig, 2006; Wu & Fox, 2003). Deficient financial literacy and asset-building resource awareness as well as the predatory practices of the rapidly growing tax preparation industry are factors that contribute to these ongoing losses. In this context, social workers must strive to improve their knowledge of community financial resources to further the economic well-being of families with low and moderate incomes (Beverly, 2002; Carlton-LaNey, 1999). Whereas nonprofit and social services agencies are the most frequently considered resources for support of families' financial needs, a less likely, yet pertinent, organization to consider as a resource for social services providers and their clients is the Internal Revenue Services ORS). The purpose of this article is to provide information on the IRS Volunteer Return Preparation Program (VRPP), the largest service of which is the Volunteer Income Tax Assistance (VITA) program. The target audience of this article includes social workers and other professionals who work with families with limited financial resources and limited financial literacy skills. Families surviving in stressful economic conditions often trust social workers and family advocates to be knowledgeable regarding services that can help them to improve their financial status (Zippay, 2002). Research suggests that people transitioning from welfare to work are often unaware or are only marginally informed of the incentives available to them (Anderson, 2002). Thus, social workers and family advocates must be aware of the myriad of programs available, including those provided by the IRS--a largely untapped resource--to effectively reach and assist families with low income and minimal assets. Yet few social work professional development courses focus on financial literacy and education, especially as these relate to taxes. Advocates are noted as needing to include financial literacy issues in their repertoire of professional development (Beverly, 2002; Birkenmaeir & Tyuse, 2005; Caputo, 2006; Seipel, 2000). BACKGROUND VRPP The VRPP helps low-income individuals and families to retain income and grow more financially self-sufficient. The VRPP serves distinct populations through four programs: (1) VITA for low- and moderate-income households; (2) Military VITA, free tax preparation for military members and their households; (3) Tax Counseling for the Elderly (TCE); and (4) American Association of Retired Persons free tax preparation for low- and moderate-income households, with a focus on elderly and retired fliers (IRS, 2009c). Due to its target population and because it is the largest in scope among VRPP programs, VITA is the focus of this article. VITA provides income tax return preparation and filing free of charge to low- and moderate-income fliers. Free tax preparation through VITA is an extremely valuable resource to low-income taxpayers, especially those who file for the federal EITC. This resource complements a growing set of other programs that address the financial lives of Americans who struggle to meet their families' needs, often despite earned income from full-time employment. Termed "asset-building" programs, these initiatives counter what have been termed "predatory" financial practices: those offering high-cost services such as RALs (formerly marketed as "rapid refunds") and short-term "payday" loans, made almost exclusively to low- and moderate-income Americans. …