The Earned Income Tax Credit (EITC) is a refundable federal tax credit that helps low-income workers increase their financial stability. Its goal is to reduce taxes for workers, supplement wages, make work more attractive than welfare and encourage the unbanked to open savings accounts.
The credit can be as high as $4,008. To qualify, taxpayers must have an income of less than:
The General Accounting Office estimates 25 percent of the tax credit dollars owed to working families go unclaimed every year. In the Eighth District, the Internal Revenue Service estimates that an additional 10 to 20 percent of eligible taxpayers do not file for EITC refunds because they either do not know about the credit or how to file for the refund. To reverse this trend, the IRS is actively assisting organizations that wish to establish Volunteer Income Tax Assistance (VITA) sites.
VITA sites, which are staffed primarily by volunteers, assist low-income workers by helping them prepare and file their tax returns for free. This ensures that eligible workers receive their EITCs along with other federal and state tax credits. VITA also can be used to connect low-income families to asset-building opportunities and to help them avoid predatory lenders.
In Louisville, the Louisville Asset Building Coalition created eight neighborhood-based VITA sites during the 2002 tax-filing season. Similar initiatives have started in Memphis, St. Louis and Arkadelphia, Ark. More information about this program can be found in the Autumn issue of Bridges, www.stlouisfed.org/publications/bridges/fall-2002/electronic-transfer-accounts-bring-banking-to-the-unbanked.