Filing taxes is required by law, but 57 percent of Americans don’t understand the tax code. That’s not surprising, since the code, and documents associated with it, add up to more than 76,550 pages.
Complicating things even further is the GOP tax bill that took effect in 2018: people who itemize deductions on their returns are paying less than they should during the year, thanks to outdated W-4 forms not tailored to the new code. That could mean a payment instead of a refund in April — something that 27 percent of taxpayers aren’t confident they’ll be able to pay, according to a survey by Tax Slayer, an online filing service.
That’s where VITA comes in: Thousands of trained and certified volunteers complete millions of tax forms for families who qualify for assistance each year. One of VITA’s main objectives is making sure families take advantage of the Earned Income Tax Credit, something a fifth of taxpayers who qualify for don’t take. This credit lifted 5.8 million people out of poverty in 2016.
Watch the above video to learn more about how VITA and similar organizations work to help families in need during tax season.
More: This Anti-Poverty Initiative Was Born in a Hospital Waiting Room
Tag: Taxes
A New Battleground: Financial Balance
Life changed quickly for Ernesto Olmos when he left the U.S. Marine Corps. After being stationed in North Carolina for four years, the corporal and his wife moved to California — and were hit with a drastic increase in housing costs.
“My wife and I had prepared for some of these financial differences in advance, but the hike in rent was substantial. We went from paying $750 for a townhome to seeing one-bedroom apartments for about $1,500 in Santa Clarita,” he says.
Olmos’ mother suggested the couple apply for a four-bedroom house with Homes 4 Families. The Citi-supported organization provides affordable housing to low-income, honorably discharged veterans. Their application for a new home in Santa Clarita Valley was accepted in 2016.
In addition to providing housing assistance, the Homes 4 Families’ initiative offers a free financial education program called Clearpoint Reconnect, operated by Money Management International. The program includes online courses, workshops and counseling for military families transitioning to civilian life.
While Olmos’ home was being built, he completed a financial planning exercise to reduce credit card debt, took educational courses to increase his long-term financial security and learned to manage his new home as an investment. “I have never been one to think about retirement, but the but the worksheets made me realize that we need to plan for the future,” Olmos says.
For veterans early in the transition stage, counseling programs like Clearpoint Reconnect can offer a particularly helpful field guide for understanding unfamiliar financial processes.
“Having that financial education stays with them long-term,” says Ruth Christopherson, Senior Vice President of Citi Salutes and Citi Community Development, which has supported the Clearpoint Reconnect program since 2012. “Things can change, but understanding their financial plan prepares vets for bumps down the road. If one’s car breaks down or if a vet loses a job, this counseling program can keep them out of debt, and they have the education to keep moving forward.”
The program includes phone, online and in-person sessions on subjects like understanding credit and debt, and avoiding bankruptcy. Clearpoint Reconnect also offers student loan and home mortgage consulting.
“Many veterans find it challenging to adapt to the world of civilian finances, and it might take two or three years to sort things out,” says Kate Horrell, a military finance coach. “Most people don’t understand the many ways their finances will change when they leave the military. Certain benefits will no longer be free, and your entire paycheck will be subject to taxes.”
Jeffrey Lodick, a former Army master sergeant and current host of the “On the Other Side” podcast, is no stranger to the challenges of decoding a civilian paycheck. After retiring in September 2017, Lodick’s shift to the private sector included a salary learning curve. “I couldn’t tell you what my salary was in the military,” he says. “I knew what I got paid on the first and the fifteenth of each month, not what was going to the GI Bill and my taxes.”
As someone who hadn’t scrutinized his military paycheck for 20 years, navigating private sector tax paperwork took effort. “As silly as it sounds, I didn’t know how to fill out a W-4,” Lodick says. In addition to a new salary, Lodick entered a different tax bracket, which created another set of unknowns. “I never had any assets to deal with. It’s going to be a learning process.”
Lodick’s situation is not unique. “Military retirees are stupendously unprepared for changes in their tax situation,” says Horrell. When they return to civilian life, vets are often unaware that they need adjust their taxes to account for military retirement and avoid under-withholding.
“You could end up owing more than $10,000 because of under-withholding two different sources of income,” says Horrell. “Any income changes need to be reflected in a W-4. This doesn’t seem to be immediately apparent to everyone.”
The upside? Veterans and tech communities are responding to the challenges with a growing set of tools to ease the transition. In addition to Clearpoint Reconnect, whose services are free to all military personnel, Military.com, TheMilitaryWallet.com, and LaceyLangford.com are excellent resources that focus on military money issues.
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This article is paid for and produced in partnership with Citi. Through Citi Salutes, Citi collaborates with veterans’ service organizations and leading veterans’ champions to support and empower veterans, service members and their families. This is the second installment in a series focusing on solutions for veterans and military families in the areas of housing, financial resilience, military transition and employment.
This Anti-Poverty Initiative Was Born in a Hospital Waiting Room
Dr. Michael Hole, a senior resident in pediatrics at Boston Medical Center (BMC), was used to hearing unusual questions from patients, but this mother’s was truly a first: “Can the clinic help me get my taxes done?”
Lacking an accountant’s expertise, Hole referred her to a free tax preparer. But when she returned for her newborn’s next appointment, the mom told Hole she’d taken two buses and a train across town, only to find the place closed. She tried once more the following week, but this time, she didn’t bring the right documents. Fed up, she forked over $400 to a local H&R Block — a huge chunk of her negligible four-digit annual earnings.
The woman’s experience wasn’t an aberration either, says Dr. Lucy Marcil, another BMC pediatric resident. “There were 27 free tax sites in Boston at the time, but they were rarely accessible to families. It might be in a church basement or be open from only 4 to 7 p.m. on a Tuesday. Others have a five-hour-long line of people,” she says.
Frustrated by the situation low-income families confront, Hole and Marcil cofounded StreetCred in 2015 to help working parents complete their annual tax filing. Their unique solution? Set up free prep stations at a place where parents show up regularly: In their case, the waiting room. While the doctor’s doing a check-up, a volunteer is using a W-2 and other records to fill out the parents’ Form 1040. (Often, the volunteers are employees elsewhere in the hospital, like a pharmacist or IT staff member, who receive tax-prep training from local partners.) Last year, StreetCred’s service returned more than $400,000 to approximately 200 Boston families.
Most of those savings come from applying the Earned Income Tax Credit (EITC), the federal government’s largest and arguably most effective anti-poverty initiative. Started by a Republican president in 1975 and given its current shape by Bill Clinton in 1993, the EITC is one of the few programs in Washington to enjoy bipartisan support. Essentially, working families making less than $53,500 can file a “negative tax return,” drawing a check from the IRS worth up to $6,242.
Unlike other entitlements that limit what a recipient can buy (think: WIC and SNAP’s restrictions to certain food items), the EITC’s payback is up to parents’ discretion. “A lot of what they spend money on is major expenses hanging over their head: credit card debt, a roof falling in or a car repair,” Marcil says. “Conceptually, the idea is that you take away financial insecurity and poverty and instability. Those things take up a ton of mental space, and removing some of that frees them up to be more actively engaged: reading to their kids or providing consistent schedules, rather than having to run off to a third job.” With what’s left over, Marcil adds, “they can buy fruits and vegetables for the baby, a winter coat or a high chair — all the things that we think of as necessities to raise a child that are really luxuries to them.”
There’s just one problem: One in five eligible low-income Americans isn’t actually taking the credit. By situating the refund in a medical context, StreetCred has the chance to significantly boost participation rates. For one, 92.4 percent of kids see a pediatrician at least once a year, giving the doctor — a professional that commands parental trust — a chance to ask whether they know about the credit, just like they ask about guns, swimming pools and low windows. (Not that the EITC isn’t within their purview too: It’s been shown to improve maternal and infant health by, for instance, upping birth weight and decreasing maternal smoking.)
Next tax season, which runs from January 23 through April 18, StreetCred will test out their model at three new locations: Boston Children’s Hospital, South End Community Health Center and a homeless shelter. They’ll be looking to see how many families they can reach, the error rates on returns, the refund’s impact on the family and, finally, the way the service changes the family’s relationship with their healthcare provider. And they’ll be piloting another set of services: With their tax form filled out, the volunteer can check whether the family qualifies for other social services they might be missing out on, like Medicaid or a Section 8 housing voucher.
Beginning with Boston, doctors’ checkups are getting much more comprehensive, and families are clearly benefiting from it.
Homepage photo of Lucy Marcil by Matthew Morris/Boston Medical Center
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Correction: An earlier version of this story stated that StreetCred helps parents fill out their Form 1099; they actually assist with filling out Form 1040. NationSwell regrets the error.
The Surprising Way That States Are Getting Residents to Pay Their Taxes
They say there’s two things that are certain in this life: death and taxes. Only this year, that’s not true in 13 states. No, a quarter of America hasn’t discovered the secret to immortality. Rather, this group has offered (or is considering) amnesty for delinquent taxpayers to file their unpaid back taxes.
It may seem contradictory, but these states are demonstrating that the best way to collect taxes is to sometimes forgive those who don’t pay. Tax amnesty sacrifices some of the penalties and interest that an evader technically owes, in exchange for receipt of the outstanding balance. While state governments do forgo some funds, they gain an injection of cash that can help close budget gaps and get citizens back in the system.
“I think it’s just kind of an easy way of plugging a budget hole. You get some revenue out of it, and if you don’t do it too often, it’s pretty effective,” Mandy Rafool, a tax expert at the National Conference of State Legislatures, tells The Pew Charitable Trusts’ Stateline blog. “It doesn’t generate much money,” but “it’s pretty painless,” she adds.
Louisiana decided to offer a break to scofflaws when the state’s revenue wasn’t keeping up with expenditures. If the Bayou State didn’t pull in $100 million, cuts would have been made to healthcare and education. Luckily, it collected more than half a billion dollars — $551 million — most of which came from a handful of big evaders. In 2013, two participants coughed up $175 million to the state, and another 34 late-filers each forked over more than $1 million. “This is an opportunity to come clean,” says Jarrod Coniglio, deputy secretary of Louisiana’s Department of Revenue, which opened a one-month window each of the past two years to catch up on payments. A third and final phase will roll out later this year, though it’ll be far less generous than in preceding years.
Experts caution, however, that tax amnesty programs can’t become too routine. “If you do one every 20 years, you can clean up some accounts,” John Kennedy, former Louisiana Revenue Director who’s now the state treasurer, tells Governing. “But we’re doing it too often. It seems like they do one every Thursday now. It’s a disincentive to people paying their taxes.”
Amnesty supporters agree the programs should seem to be announced at random; otherwise, some will expect to be let off the hook in the future. That’s why Indiana, which estimates it will haul up to $159 million in back taxes, has prohibited those who took advantage of amnesty in 2005 from participating in this year’s event.
Most people who skip paying taxes aren’t out to game the system, argues Michael Fried, a tax lawyer in Bethesda, Md. “They do it because of real reasons — the economy, their job status, the cost of raising a family,” he tells Stateline. “People just fall behind and a solution pops up.”
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The Short-Term Benefits of Helping Low-Income Kids Are Apparent. But What About the Long-Term Impact?
Parents often wonder if all the money they pour into their kids will pay off in the end, resulting in productive adults. The federal government could ask the same, considering that it’s provided assistance to children through various programs, including Medicaid, which extended benefits to children back in the 1980s with the formation of the State Children’s Health Insurance Program.
Economist Amanda Kowalski of Yale University decided to find out. Partnering with David W. Brown and Ithai Z. Lurie of the U.S. Treasury Department, she analyzed tax return data and found that giving Medicaid benefits to kids does pay off in the long run. Those who relied on Medicaid as low-income children earned more money and paid more in income taxes when they became adults working than those of a similar income level (during childhood) who did not receive benefits.
Researchers found that, for every Medicaid dollar spent on a child, 14 cents were returned during their first few years as working adults. The amount rose to 56 cents by the time the recipient was 60 years of age. Additionally, they discovered that people who received Medicaid benefits at kids were less likely to die as young adults than people in the non-Medicaid low-income group. Plus, they were more likely to attend college.
The study’s huge sample size of 14.6 million people gives strength to its findings.
“Although it will take years to know the long-term impact of current expansions of Medicaid undertaken as part of the Affordable Care Act,” Kowalski tells the Yale News, “this study shows that the investments that the government made in Medicaid in the 1980s and 1990s are paying off in the form of higher tax payments now.”
MORE: 40 Years Ago, Researchers Sent Half These Children to Preschool. And What an Amazing Difference it Made
When Taxpayer Dollars Aren’t Enough, Private Businesses Step in to Fund Public Programs
Taxes. It seems like we’re always grumbling about them — whether it’s the amount of sales tax we’re charged on a purchase or the total deducted from our paycheck. And regardless of the type, no one usually agrees on who should pay the most in order to bankroll all of the necessary programs funded by taxes.
Well, that’s why several states have developed a slightly different approach. Instead of using tax payer dollars to fund some public programs, they’re turning to the private sector.
It’s called “pay for success” and operates under the theory that if a program is a hit, investors won’t mind putting money into it.
To start, a state’s government outlines specific goals in a target area such as mental illness, homelessness or preventative health care. Next, private investors and philanthropic organizations finance nonprofits that provide cost-effective social services in that target area. Then, if the program meets the established goals, the investors will receive a “success payment.” Not a bad deal, right?
As of right now, three states — New York, Utah and Massachusetts — and New York City have implemented such social impact bond (SIB) programs.
New York City was the first, establishing their Adolescent Behavioral Learning Experience (ABLE) program to reduce recidivism among 3,400 adolescents from Riker’s Island each year during a four year time period, according to the New York Times. The program was funded by Goldman Sachs. According to a press release, “Goldman Sachs receives its capital back only if the re-admission rate – measured by total jail days avoided – is reduced by 10 percent or more. Should the reduction exceed 11 percent, Goldman Sachs will also receive a financial return that is consistent with typical community development lending.”
The program in Massachusetts is targeting recidivism rates and employment outcomes among at-risk youth. There’s also a program for adult basic education in development.
Even the federal government is throwing its hat into the ring. The Obama administration funded a model project in Ohio as well as promised $500 million to help other states and local governments start programs.
And now, all eyes are on these programs whose success could mean a complete revamping in how governments operate. Fewer taxes and more public projects — now that’s a plan that most of us could get behind.
MORE: Better, Faster, Stronger: Why Ohio is Sending Government Officials to Boot Camp
Will This Oklahoma School Program Boost Our Economy?
Anyone who’s ever found it difficult to file their taxes or manage their bills will appreciate what Oklahoma’s schools will soon be doing. Starting this May, Sooner State students will learn skills that prepare them for financial responsibility.
As the NewsOK reports, following state state legislation passed in 2007, Oklahoma students “must demonstrate an understanding in banking, taxes, investing, loans, insurance, identity theft and eight other areas to graduate.” And teachers are required to certify students’ working knowledge in each area. The requirements will be implemented from the seventh through 12th grades and schools have the option of using curriculum provided by the state Education Department or whatever they choose, Amy Lee, the executive director of the Oklahoma Council on Economic Education told the publication.
MORE: This Congresswoman Has a Plan to Protect Students from Crippling Debt
Oklahoma’s move to teach financial literacy sounds like a no-brainer if we want to prepare students with skills outside of reading, ‘riting, and ‘rithmetic. It’s also important to ensure that future generations avoid financial blunders when we’re still reeling from the 2008 economic crash—not to mention our ballooning student loan debt, which has surpassed $1 trillion.
Does Taxing Soda Actually Improve Americans’ Health?
Obesity in America is an expensive problem—one analysis calculated the costs of obesity-related medical expenses at $147 billion in 2008. For years politicians have debated whether a tax on unhealthy items would help to turn the obesity rates around, and some cities have gone forward with proposing taxes on soda, including San Francisco, which will ask voters to decide on a soda tax on the November ballot.
But a new study from the National Bureau of Economic Research suggests that taxing any one food product often results in consumers switching to an equally unhealthy item. The report, entitled “The Effect of Prices on Nutrition: Comparing the Impact of Product- and Nutrient-Specific Taxes,” suggests that the better way to go would be to tax the precise ingredients that are detrimental to health—sugar, salt, and fat—as increases in these taxes do result in lowering the overall consumption of junk food.
The study, which analyzed 123 million food purchases, found that a 20% tax on sugar would result in a 16.41% drop in sugar consumption, while a 20% tax on soda would reduce soda purchases by about 4%, but might send soda lovers scurrying to other unhealthy options. The study’s authors conclude, “nutrient-specific taxes on sugar, fat or salt have much larger effects on nutrition than product-specific taxes on soda drinks or packaged food.”
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The Surprising Way the Military Is Saving Tax Dollars
The U.S. military is going green to save some green. According to a report from Pew Charitable Trusts, the Defense Department is looking for ways to save money on its energy bill, which costs taxpayers a hefty $4 billion annually. But our armed forces aren’t just looking to cut costs, they’re looking for greener solutions. As GreenBiz reports, “the agency expects to source at least 25 percent of its energy from renewable sources.”
According to Pew, energy-saving and efficiency projects at the Pentagon more than doubled from 630 to 1,339 between fiscal years 2010 and 2012. Renewable-energy projects at military installations run by the Defense Department also rose from 454 to 700. Not only is going green better for the planet and for the budget, it also means decreased reliance on foreign oil and lower transportation costs.
The military has been using the private sector and third-party financing to help deploy its projects. “These improvements are possible even as the Pentagon’s budget is shrinking because the armed services are harnessing private-sector expertise and resources,” Phyllis Cuttino, who directs Pew’s project on national security, energy and climate, said in a statement. “This is a win-win-win proposition: The military gets better energy infrastructure, taxpayer dollars are saved, and the clean energy industry is finding new market opportunities.”
MORE: The Military Is Devoted to Something That Will Totally Shock You
Free Help to File Your Taxes
During tax season, low-income workers often fall prey to high-fee tax preparation services and charges for rapid refunds. The Volunteer Income Tax Assistance Program aims to change that by offering free volunteer tax assistance to Americans with incomes up to $60,000 a year at centers across the country. Volunteers are given free training in tax preparation, and those who are skittish about accounting but still want to help can contribute in a way that doesn’t require tax law certification. Last year VITA volunteers in Middletown, Connecticut helped almost 500 people file their taxes for free. VITA volunteers in Tennessee have provided tax assistance to 1400 people over the past 9 years, returning $2.5 million to these taxpayers. VITA is now seeking new volunteers across the country for the upcoming tax season.