Alibi V.13 No.3 • Jan 15-21, 2004 

Ortiz y Pino

Working Poor Can Benefit from Tax Credits

Don't get suckered when you can use free tax assistance program

Strange that one of the simplest, most effective and painless ways of reducing poverty in this country would have been both developed under one Republican Administration (Nixon's) and faced serious threat of extermination under another (George W.'s).

That the Federal Earned Income Tax Credit survives today is a testament to its success. But it remains in serious need of a PR campaign to pump up its reputation and expand its use by those it was designed to help: the working poor.

Last week Lisa Page, a single mom, spoke at a press conference intended to remedy the sad fact that many eligible families don't take full advantage of federal and state tax credits. It was the second such press conference in Albuquerque in as many weeks, following on the heels of a similar one sponsored by ACORN. We may need one every week for a while until the message sinks in.

Lisa Page works 40 hours a week for a local home supply company and earns $7.50 an hour at that job. Over Christmas she found a second, part-time job, also at $7.50. She's looking for another one now that the seasonal one stopped. She needs that second income because Lisa is caring for her mother and her daughter. She's the sole breadwinner in a home of three generations, a classic example of what some call the “sandwich generation.”

Last year she paid a large, well-known tax return preparation company $200 for preparing her state and federal returns—expensive, but she wanted to make sure she was taking advantage of all possible legal tax credits available. As a result, she got back over $3,000 last year and that cash helped enormously to get her family's bills paid.

This year, because of what she's learned, she'll pay nothing for expert help to secure the credits because she'll use VITA, Volunteer Income Tax Assistance, a service she located through the YWCA's tax preparation hotline (800-219-3999).

Lt. Gov. Diane Denish and Tax and Revenue Secretary Jan Goodwin were at the second press conference in Albuquerque, seeking to publicize both the availability of the service and the deplorable, widespread failure of many eligible families to file for all of their credits.

According to the IRS, more than 27,000 eligible New Mexicans didn't claim the Earned Income Tax Credit last year. Since the credit can be worth up to $4,200 for families with two or more children, it means millions of dollars that could have come into the state to buy necessities for hard-pressed families were left unclaimed.

The Earned Income Tax Credit is just one of several programs designed to help off-set the inherent regressive character of many of our taxes. But when low income families don't know about the credits, the whole point of these programs is lost, and they can actually wind up paying a higher percentage of their incomes in taxes than families with far higher incomes.

Distressingly, in New Mexico we lead the nation in the number of people who don't claim another federal benefit, the Child Tax Credit. Single working parents with incomes up to $94,000 and married couples with incomes up to $129,000 are eligible to claim $1,000 per child. Yet last year New Mexicans didn't bother to claim $2.5 million from that program.

There's a third federal credit, the Dependent Care Tax Credit, designed for working parents who pay for childcare. That one can produce a refund of up to $2,100 for two or more children of low income working families.

The state of New Mexico has put into place two additional credit programs of its own, the New Mexico Child Day Care Credit and the Low Income Comprehensive Tax Rebate (LICTR). Again, call that hotline number to find out how to get help filing for them.

All five of these programs are accessed directly through the individual's income tax returns. So it is crucial to New Mexico's working families (and to all of us who could benefit greatly from the economic stimulation of millions of greenbacks spent on baby shoes, macaroni and cheese and haircuts) that good, reliable information be provided.

That's where VITA and the other similar programs at community centers, shopping malls, TVI and public libraries come in. Free tax return preparation by trained volunteers puts dollars into the pockets of working families.

Now, there's another angle on this issue that needs to be addressed by New Mexico's lawmakers: predatory tax preparation scams. Promising “instant refund loans,” they suggest there is no reason to wait for the federal refund check when “We can advance you your refund as soon as we prepare your return.”

Because electronically-filed returns generate a refund check within two weeks, those unscrupulous outfits get their money back with practically no risk—and the interest they charge for that two week advance can amount to well over 100 percent annualized. Of course, it's an unwanted expense easily avoided by using the volunteer tax preparation of VITA.

And it's a form of predatory lending that should be outlawed. Capping the effective interest rates chargeable on such tax refund loans would be an important step toward protecting vulnerable families. It would keep the money where it is needed most: buying clothes and food for kids.

The opinions expressed are solely those of the writer, and not the opinions of the Alibi management or staff.