Making use of earned income tax credit
For years, Sandra Rascon filed her own tax return, never knowing that she was missing a huge tax credit -- one that could generate an annual refund worth nearly two months' pay for the health aide.
Three years ago, she stumbled upon a program offering tax preparation assistance for free and it changed her life. Last year, she bought her first home. The down payment came largely from tax refunds.
The single mother of four isn't the only taxpayer who qualified for the earned income tax credit to have missed a break for the working poor that can pay up to $4,716 this year. Experts estimate that as many as 1 in 4 people who qualify are unaware of the credit.
"A lot of these families are not filing tax returns because they earn less than the minimum required for filing," which is $17,500 for a married couple, said Elise Buik, president and chief executive of the United Way of Greater Los Angeles. "They are not dealing with any type of income tax preparation at all. Reaching them is a big challenge."
The United Way has launched an initiative to help people fill out the necessary tax forms to get the credit. It is offering tax assistance at more than 100 locations around Los Angeles. Similar efforts are underway in big cities nationwide. The Internal Revenue Service also offers free tax preparation through its Volunteer Income Tax Assistance program, which helps low-income and elderly filers in locations around the country.
"The earned income tax program is very important to us because we use it as a gateway to help families learn about financial literacy, get them banked and get them saving and investing," Buik said. "The program is important on its own, but it's a gateway to get these families other services too."
For Rascon, it provided a way to save for the three-bedroom Los Angeles home that she bought late last year.
"You can use the refunds for anything," she said. "But I was on a strict budget to buy this home. It was my dream. I can't believe I was able to do it. This year, I'm going to use the refund to buy furniture."
The earned income tax credit, launched in 1975, was initially designed to return to low-income workers a portion of the Social Security and Medicare taxes withheld from their paychecks. But after a series of changes over the last two decades, the credit generates a "refund" that typically exceeds the amount of tax withheld. In fact, the credit is considered the nation's largest anti-poverty program, delivering more than $36 billion to about 21 million families.
