January 24th, 2008
By Thomas Spencer
A small army of college students this week launched the SaveFirst initiative, a free service to help low-income residents file their taxes and claim the earned income tax credit.
Paying out $43 billion annually, the EITC is the government’s largest anti-poverty program, returning taxes paid and, in some cases, supplementing the earned income of low-income workers.
However, the IRS estimates that between 20 percent and 25 percent of those eligible don’t claim the credit.
Additionally, in Alabama, 75 percent of those claiming the credit use paid preparers to fill out the paperwork. In some cases, those preparers charge large fees and high rates of interest on short-term loans from the anticipated refund.
Stephen Black, whose organization Impact Alabama created SaveFirst, said the initiative aims to increase the percentage of Alabamians taking advantage of the EITC and to provide a free alternative to commercial preparers. College students, many of whom receive college credit for their service, are trained to help prepare returns.
Frank Leonard stopped by the Smithfield Library Tuesday, and in less than an hour had his refund prepared and filed electronically. Leonard, who has worked electric maintenance at hotels, found he was entitled to a $500 refund through the credit.
In the past, Leonard has relied on a friend to prepare his taxes and always found himself paying. “I really appreciate you young people coming down and helping us,” Leonard said to the Birmingham-Southern students who had helped him through his return.
Black said increasing the number of people claiming the EITC doesn’t costAlabamaany money, and it’s a direct and simple way to increase assistance to working families.
“Without any new legislation or tax laws to pass, it will result in a dramatic increase in the returning of tax dollars to the working families to whom they are owed,” Black said.
According to a study by the Brookings Institute, about 75 percent ofBirmingham’s EITC recipients pay an average of $200 each simply to access the benefit. Among major U.S. cities, only Memphis has a higher percentage of applications going through paid preparers.
These paid preparers often offer “rapid refunds,” which are loans based on the expected refund at annual percentage rates of as much as 800 percent.
According to Black, about 35,000 families in the city ofBirminghamclaimed an estimated $75 million through the federal EITC in 2004. However, they lost $5 million to commercial tax preparers through fees and refund anticipation loan costs.
Sarah Louise Smith, coordinator of SaveFirst, said that if a filer has a checking account, a refund can be direct-deposited within seven days.
In its second year of operation, SaveFirst has trained 300 volunteers, college students from a dozen campuses statewide, including Birmingham-Southern, the University ofAlabama at Birmingham, Cumberland School of Law and the University of Alabama. Some receive course credit for the training and volunteer time.
The volunteers will be staffing two sites in Birmingham: Smithfield Public Library and New Hope Community Development Federal Credit Union.
The service is available to working families making less than $40,000 a year with children in the home or $20,000 a year without children in the home. The maximum refund for a family with more than one child is $4,700.
The EITC check is often the largest check a lower-income working family will see all year, Black said.
The money helps families cover expenses such as housing, utilities, food and child care, making it easier for working Alabamians to keep working, he said.
Appointments may be scheduled at 877-578-8778, with daytime, evening and weekend hours available. Filers need to bring identification and Social Security card, forms with documentation of all income received, documentation of child care paid and information such as receipts for charitable contributions and other deductions.
E-mail: tspencer@bhamnews.com
