Helping Low-Income Families at Tax Time

October 01, 2013
By  Vena Stevens

Tax returns

Gateway EITC Community Coalition (GECC) is a group of partner agencies dedicated to serving low- and moderate-income (LMI) families in the St. Louis area. Since 2002, GECC has provided free tax preparation services to LMI households, making sure that these taxpayers take advantage of all the tax credits for which they are eligible.

Asset building plays an integral part in GECC’s efforts to financially empower LMI workers. Tax time is a unique opportunity to help low-income families move toward financial stability. To that end, GECC offers supportive services at tax sites designed to help clients make informed decisions to maximize the use of tax refunds for saving and asset building. The coalition helps low-income taxpayers take advantage of the once-a-year boost to their income by providing financial education and access to mainstream financial products. GECC partners with local banks and credit unions to offer traditional checking and savings accounts, as well as fresh-start accounts for people who have had banking challenges in the past and may not qualify for a traditional account. Other on-site services include credit counseling, financial education, promotion of savings bonds, low-cost debit cards, help filling out FAFSA forms, as well as information on college savings plans, individual development accounts (IDAs) and predatory lending.

Earned Income Tax Credit (EITC)

Education about the Earned Income Tax Credit (EITC) is a very important service provided by GECC. A refundable federal tax credit for LMI working families, the EITC is intended to encourage work and help parents meet their financial needs. It is widely viewed as a key support in welfare-to-work and is regarded not only as an income supplement, but also as a resource that might be directed toward asset-building strategies for LMI families. Some full-time minimum-wage workers can receive tax refunds that equal a quarter of their yearly earnings.

According to the Brookings Institution, the EITC has a positive impact on local, regional and state economies by generating an estimated $1.50 to $2.00 in economic activity for every $1.00 in EITC refunds. For tax year 2012, 67 percent of GECC clients reported that they planned to use their refund money to pay for food and catch up on rent, mortgage, utility and medical bills. This translates into more than $6.3 million infused into the St. Louis community.

No federal program lifts more children and families above the poverty line than the EITC; yet, just last year, an estimated $34 million in EITC monies went unclaimed in the St. Louis metropolitan area. Often those eligible for this tax benefit do not claim it simply because they are not aware that it exists, or they do not realize that they qualify for the credit. Some eligible families fear that they’ll owe taxes or lose eligibility for other benefits, and so they do not file.

Paid Tax Preparers

Complex forms, fear of mistakes and the hope of receiving refunds faster keep many EITC recipients from preparing their own returns. Recent IRS data show that of those who claim the EITC, 70 percent file their returns using a paid preparer, paying an estimated average fee of $260. For the St. Louis area, this represents a drain of $11 million from the pockets of taxpayers who are most in need. In addition to helping taxpayers save this money, GECC also helps clients avoid check-cashing fees and the high-cost loan products offered by many commercial paid preparers by offering free, fast, direct deposits into their checking or savings accounts. Refunds received by direct deposit can be split and deposited in up to three different accounts. This encourages savings, and refunds that are directly deposited cannot be stolen or lost in the mail.

Alternative Banking Services

Because LMI families are more likely to be unbanked, they are forced to rely on alternative banking services. These services can cost $100 a month or more, further depleting already limited financial resources. The families served by GECC face challenges accessing low-cost, low-risk financial services. These same families frequently have poor financial management skills and/or credit histories, and they need assistance with asset-building strategies. Since the EITC can be the single-largest boost to a family’s yearly income, linking the credit to affordable banking services and asset-building options is critical.

EITC and Employment

The EITC has also been shown to have a positive impact on local communities by increasing employment. Families who take advantage of GECC services keep more of their money and are most likely to spend it at the local level, patronizing neighborhood stores and other businesses. This, in turn, prevents layoffs and even creates jobs. The EITC also increases employment by encouraging LMI families to work. Local economies experience a decrease in overall poverty and in the number of single parents receiving public assistance.

GECC’s Impact

Every year GECC provides free income tax preparation from the end of January through the middle of April. For the 2013 tax season, LMI families in the St. Louis area were able to have their state and federal tax returns prepared for free at one of 28 sponsored sites. All of these sites are located in ZIP codes where the IRS has identified large numbers of individuals currently claiming the EITC, as well as large numbers of people who are eligible to claim the credit but do not. The average adjusted gross income of clients served by GECC in 2013 was $19,456.

Over the past 11 years, GECC has prepared more than 41,450 federal returns at no charge and brought more than $49 million in refunds to the community. The coalition’s success can be largely attributed to its ability to leverage partnerships with a wide range of organizations. Collaboration with partner organizations allows GECC to pool resources, take advantage of widespread marketing of the EITC and free tax preparation, and prevent duplication of outreach efforts. In many cases, GECC’s services are directly marketed to the target population through those partners.

Volunteers are what make GECC’s free tax preparation program possible. In 2013, volunteers prepared 7,912 tax returns (an increase of more than 13 percent over 2012), resulting in more than $9.5 million in refunds and saving clients more than $2 million in tax-preparation fees. GECC is constantly recruiting volunteers to keep up with the growing need for services. No experience is necessary to volunteer. For more information on how to become a volunteer or to make a donation, please visit

Bridges is a regular review of regional community and economic development issues. Views expressed are not necessarily those of the St. Louis Fed or Federal Reserve System.

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