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EITC Awareness Day: Tax Services for New Yorkers

January 27, 2017
Lorelei Salas, Commissioner, New York City Department of Consumer Affairs (DCA)
Eileen Auld, New York Tri-State Director, Citi Community Development

Tax season is a stressful time for many. However, for low-income workers, the cost of tax preparation is often greater than they should bear – and many leave thousands of dollars in tax refunds they have earned on the table.

Every year, households in New York City spend on average about $150 to $250 on tax preparation. They pay for these services primarily for the peace of mind that they offer that they are filing correctly and taking advantage of all available credits. But low-income households on average pay up to twice as much for the same service, despite the fact that there are many free high-quality options available.

Predatory tax preparers lure workers in by offering advance payments on anticipated refunds. But fees for those advances can consume up to a 20 percent cut of the refund. Moreover, many preparers -- 55 percent , according to the U.S. Government Accountability Office -- are not even subject to regulation by the Internal Revenue Service (IRS).

One study found that ZIP Codes with the highest number of workers filing for the Earned Income Tax Credit (EITC) – the largest transfer of money from government to low-income working households every year, providing more than $65 billion to about 28 million Americans – have approximately 75 percent more tax preparers per filer than middle-income ZIP Codes with a moderate share of EITC filers.

Yet that EITC refund, which averages about $2,400 per household in New York and may be the single largest check a family receives all year, serves a critical function. According to Family Assets Count, almost half of New York City households lack sufficient savings to sustain themselves for three months at the poverty level in the event of a disruption to income such as a job loss, a medical emergency or a major household repair. That is 4.1 percent more than the national rate.

The problem isn't access to services – it's access to free high-quality services that enable financial resilience for the long term. To mark EITC Awareness Day, January 27, let's discuss what we're doing about it.

The City of New York, in partnership with hundreds of community organizations, has been building the capacity to serve even more New Yorkers earning less than $64,000 annually – EITC eligible households – to prepare and file their taxes for free. But we've got to make sure that families take advantage of the service and don't walk into the nearest neighborhood shop that will diminish that important check.

That's why for the past three years, we have worked together on the New York City's largest free tax preparation public awareness campaign. The initiative educates New Yorkers on the availability of free, IRS certified volunteer tax preparation support in multiple languages. We've also worked to ensure that those eligible for EITC claim it. About one out of every ten New Yorkers fail to claim their EITC – leaving money owed to them on the table. After the first year of the campaign, use of free tax preparation locations increase by 50 percent, and over the past two years, more than 310,000 New Yorkers have filed with NYC Free Tax Prep and received roughly half a billion dollars in tax preparation fee savings and refunds.

Moreover, in a commitment to New Yorkers most in need of support, Citi also funded the expansion of free tax preparation sites on New York City Housing Authority (NYCHA) properties, in collaboration with the Fund for Public Housing, New York City Department of Youth and Community Development (DYCD), and Food Bank For New York City.

But research has found we can do more than outreach. We've got to make free tax service more responsive to the unique needs of lower-income households.

Citi has collaborated with the Department of Consumer Affairs (DCA), the New York City Center for Economic Opportunity, Design for Social Innovation and Sustainability Lab at the Parsons School of Design, Mayor's Fund to Advance New York City, and Food Bank For New York City on a project called Designing for Financial Empowerment (DFE). The program uses a participatory approach known as "service design" to work directly with New Yorkers on how to make free tax prep services more accessible and effective.

The research found that certain sites were fully booked, filers sometimes travelled to distant sites because they were unfamiliar with nearby providers, and some filers made multiple visits because they were unaware of the documentation required. In response, Citi supported DCA to develop a new text messaging-based platform to allow filers to check in at a free tax service location, and then receive a text when a preparer is ready to help them. In addition, a new online portal will help filers check their eligibility for NYC Free Tax Prep serves and subscribe to receive tax season tips, reminders, like what documents to bring, and updates via text message. The online portal will serve as a year-round client engagement platform, so that the conversation about tax filing and other important services extends beyond tax season.

By collaborating across sectors and supporting initiatives to make public services more accessible and effective, we are helping to improve financial access and resiliency for more individuals and families, and build a more inclusive city.

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