It's a little early for most people to start worrying about filing their income taxes, but the staff at the Center for Economic Progress is already gearing up. The center, a statewide nonprofit organization that provides free tax counseling to low-income people, is trying to line up volunteers to help poor and working-class taxpayers with their forms, especially the forms that let them take advantage of the federal Earned Income Tax Credit program.
"We're calling for volunteers right now," says Mary Ruth Herbers, the center's senior director for programs. "It helps if you're good at math, but you don't have to be an accountant, and you don't have to be an expert on taxes--we'll provide some training. This is just a great way to help people receive the assistance they have coming to them."
The federal EITC--there's also a state program--has loyal, widespread bipartisan support in Washington and across the country because it fits different political agendas. Liberal Democrats love it because it uses the tax code to redistribute money from the rich to the poor. Conservative Republicans support it because, well, they'd look like hypocrites if they didn't. After all, they've been championing cuts in capital gains and estate taxes that largely benefit the rich. And they see it as providing an incentive for low-income people to keep working.
"How can you be against it?" says Abby Jackson, a south-side nurse who's been a center client for the last two tax seasons. "You can't get it unless you're working, so it's better to keep your job."
The EITC, says Herbers, has "become the largest federal benefit program for low-income people--it's bigger than food stamps." Last year, she says, the program paid out a total of $32 billion in subsidies, though only 15 percent of the people eligible for the subsidy file for it annually.
The program got its start under President Richard Nixon. "I know it sounds pretty radical, but back in the early 70s President Nixon was proposing a subsidy to low-income people whose income was so low they didn't pay taxes," says Herbers. The Nixon proposal was called a negative income tax. "In other words, if you were making, say, $5,000 a year back then, Nixon was proposing that instead of you paying taxes to the government, the government would pay you a subsidy as a way of addressing income inequality."
The proposal never made it to Congress, but in 1975 Nixon's successor, Gerald Ford, joined with Democrats to push the EITC through Congress. Nearly two decades later President Bill Clinton expanded it.
"The program is intended to offset payroll taxes for low-income households," says Herbers. "From the first dollar you earn you are eligible for a small subsidy, to come after you file your tax return." Recipients are generally working-class people who've had more taxes deducted from their paychecks than they'll owe in April, but the subsidy is in addition to any refund. The amount varies according to how much the taxpayer earns and how many dependents he or she has. For instance, a single mother with two children who makes $5 an hour is eligible for up to $4,140 after she files her taxes. "As your salary increases, your EITC slowly decreases--obviously a single person with no dependents is eligible for less," says Herbers. "Married couples are also eligible. The feds don't want to make marriage a disincentive, so they up the amount of income that married couples can make." A couple with two kids can make up to $34,000 a year before they're ineligible for the EITC.
Last year in Illinois, says Herbers, about 760,000 tax-return filers, 300,000 of them in Chicago, received a tax refund under the EITC program. Filling out the appropriate forms is a daunting task. "The thing about the federal tax code is that it's relatively progressive but incredibly complex," says David Marzahl, the center's executive director. "Embedded in it are all sorts of credits and benefits, but you have to figure out how to get at these credits. If you're part of the upper or middle income you pay an accountant to file your returns or you get fancy software that helps you find the breaks. If you're lower income you do it yourself, and you may lose out on things. A lot of people won't even bother because they have a built-in fear of the IRS. A lot of them say it's just not worth filling out these forms."
Those people could be passing up a lot of money. According to the Internal Revenue Service, the EITC can be as much as six weeks of the average recipient's annual pay.
To help such people out, the center sets up about 20 clinics in libraries, parks, churches, and community centers throughout the city, starting in mid-January. There's no charge for the service, and the clinics continue until April 15. "The first day of our tax season is January 24--that's when we open our free tax service," says Herbers. "You can come in as soon as you get your W-2. It doesn't make sense for us to start any earlier, since most companies don't mail out the W-2s until mid-January."
The busiest time at the tax clinics is the end of January. "Everyone wants their tax refunds as soon as possible," says Herbers. Marzahl adds, "If you look at the annual life cycle of a family, they're really going to get maxed out at Christmastime. It's hard for families. So they file in January, and they can't wait to get their refunds." The pace slackens in late February, but in mid-March the procrastinators start pouring in.
The center also helps people with other tax problems, and it helps them set up bank accounts so they can have their refund checks deposited directly into them. "A lot of people don't fill out their forms correctly, and they wind up paying for their mistakes," says Marzahl. "The IRS certainly doesn't come back to you and say, 'Hey, you didn't get this benefit, you didn't file for that credit.'"
He says many people hurt their cash flow by paying more than they have to in withholding, because, for example, they don't correctly state the number of their dependents. "If you fill out your tax forms and you claim the correct number of dependents, your employer will take this into consideration, and very little is going to be taken out of your paycheck," he says. "But we find that lots of people don't understand that form at all. We have very hardworking moms and dads who claim no dependents. As a result, they have a ton of taxes that they shouldn't have to pay taken out of their checks each week. We can help these people get back withholding as well as the EITC. We get people who get back up to $10,000. A typical return is $1,600 to $1,800."
Low-income residents who want to get their tax refunds quickly often turn to private tax-preparation companies, many of which offer something called a "rapid-refund program." Herbers says it's essentially a short-term loan. The company helps a person fill out his forms and does a credit check, which generally takes two days. Then the company pays the person the amount of the refund, minus a fee--often a steep one. "I've seen rapid-refund charges that cost hundreds of dollars," says Herbers. "The companies claim they need to charge that much to cover their risk. But the risk is really very low since they're dealing with the IRS and know the check's coming in."
Many people think they have no choice but to use the private companies. "If they're going from paycheck to paycheck and they're about to get evicted 'cause they fell behind at Christmastime, well, they have to get that money right now," says Herbers. "They can't get rapid refund from us. The fastest we can get a check back from the IRS is five days, and that's for people who have direct deposit. Unfortunately the difference between five and two days may be too long for someone who really needs the money."
According to recent U.S. Treasury figures, the economy has lost about 2.8 million jobs since 2001, most of them manufacturing jobs. In October about 126,000 jobs were added, but most of them were in the service industries, which generally pay much less than manufacturing. The increase in jobs at the lower end of the pay scale means that many people who've never been eligible for the EITC now are. "This is the program for a lot of working people," says Herbers. "We have to get out the word." To help do that Mayor Daley has held press conferences and made public service announcements.
Abby Jackson says she heard about the program from her sister. "I'm a nurse with two kids, and my budget was kind of stretched tight," she says. "I went in and it was no problem. They couldn't have been nicer."
In 2002 she got a refund for "a little over $3,500." This year she received about $2,800. "The first year I used the money to buy a car," she says. "The second year I was able to put some money on a house. It's a great program. It's my money--I worked to earn it. But sometimes it's hard to figure out how to get it back."
Most of the advisers at the center's clinics are volunteers. Some, like Gilbert Sorber, are retirees. "I'm no expert in tax law--I was an engineer," says Sorber, who's been volunteering at a clinic in Austin for four years. "But I was always good with numbers, and I always did my own taxes. This is not that hard if you don't get intimidated by the forms. And [the center] has a professional accountant on hand to answer any questions you have."
Herbers says training sessions for volunteers will start in December. "Each year we recruit between 1,000 and 1,200 volunteers," she says. "We recruit them from every walk of life--bankers, lawyers, accountants, and just regular folks from the neighborhood. We provide eight hours of training, and then we send them out."
This year they hope to get as many as 1,500 volunteers. "We're looking for anyone who's not too intimidated by tax forms--who likes the challenge of deal-ing with the process," she says. "People can call us at 312-252-0280, or they can e-mail us at www.centerforprogress.org. How many volunteers do we need? As many as we can get."
Art accompanying story in printed newspaper (not available in this archive): photo/Jon Randolph.