The Right Tax Refund Can Alter These Low-Income Families’ Financial Futures

This nonprofit is helping them get it.

Tax forms.

Kayla Bradford was about to begin an occupational therapy aide certificate program when her car broke down in 2010. In Birmingham, Alabama, she would have had to rely on inefficient and inaccessible public transportation to get to school, so Bradford had to quit the program. Since then, she has had three children, experienced homelessness, and moved in with her aunt. She is 28 now and works full time as a certified nursing assistant providing care for elderly patients. Outside of her 3 p.m. to 11 p.m. shift, she works another part-time job two or three days each week, also as a CNA. Kayla Bradford is about to pick up where she left off in 2010.

Since 2010, Bradford has filed her taxes at no cost with SaveFirst, a nonprofit initiative that recruits college students and recent graduates to operate volunteer income tax assistance, or VITA, sites across the Southeast. With her tax refund this year, Bradford is headed back to the occupational therapy aide program, and she is finally moving her family into an apartment of their own. Her children are excited, and she has hope for what is to come. “It feels good, to know that I’ll actually be in my own home,” she said, “We can just relax.” Her kids will have “their own beds, their own rooms, and the simple stuff that normal people would be used to—flicking on the light and turning on the TV. They’ll enjoy that.”

SaveFirst is one of several initiatives of the Birmingham-based nonprofit Impact America. The initiative launched in 2006 and operates VITA sites, including the one that Bradford visited, in Alabama, Florida, South Carolina, and Tennessee. In Alabama, the organization deploys a class of AmeriCorps members to coordinate 21 sites across the state, and we train hundreds of college-age and community volunteers to prepare tax returns. As an AmeriCorps member with Impact, I coordinated tax sites in Birmingham and Troy, Alabama, and also served at sites in Tuscaloosa, Montgomery, Anniston, and Dothan.

The poverty-alleviation program that would later become AmeriCorps was originally founded in 1965 as a domestic version of the Peace Corps.* The current iteration of the program is a public-private partnership administered by the Corporation for National and Community Service, a federal agency. Organizations like Impact America apply for AmeriCorps grants to fund yearlong volunteer positions to address issues related to economic opportunity, public health, education, disaster services, and the environment.

VITA programs address an unmet community need, ensuring that low-income taxpayers access their full refund. SaveFirst takes the program a step further, attempting sustainable reform through an intentionally designed service-learning initiative. According to Stephen Black, founder of Impact America and director of the Center for Ethics and Social Responsibility at the University of Alabama, this is a primary goal of the initiative, not a secondary effect. “In terms of creating a stronger sense of connection from this generation of college graduates to the majority of American families, I can’t think of a more powerful experience.”

As is the case with many low-income Americans, most of Bradford’s refund came from the earned income tax credit, a federal income assistance program for low- and moderate-wage workers, primarily with dependent children. In 2017, Bradford’s gross income was about $16,600, and she received the maximum amount of the EITC, $6,318, as well as the refundable portion of the child tax credit, for a refund totaling nearly $8,370. On a month-to-month basis, the majority of Bradford’s income went toward contributing to rent and paying for her vehicle, a necessity in a city like Birmingham. Her refund significantly expanded her budget. Beyond the funds she was able to use for her new apartment, it also allowed her to plan for her children’s futures and pay for the transcripts she needed to return to school.

The EITC, which began in 1975 and roughly tripled in 1994, has benefited more than 26 million families and individuals in 2015 and lifted 6.5 million people out of poverty, about half of whom were children. The credit incentivizes work and benefits taxpayers who have earned income, such as wages, salaries, or other taxable employee pay, who also have children. The amount received varies based on income, filing status, and number of dependent children. It is the largest federal investment in addressing poverty, and it achieves bipartisan support in Congress.

The EITC is a unique anti-poverty measure because it provides a significant amount of money annually in a lump sum. In a study titled “The Role of Earned Income Tax Credit in the Budgets of Low-income Families,” researchers find evidence that the EITC “is different from other types of income subsidies like child care, food stamps, etc. because it allows credit constrained families to meet goals other than current consumption.” It creates the opportunity for low- to moderate-income families to pay down debt, build assets, contribute to their savings, and pursue long-standing goals, as Kayla Bradford did.

The policy has been successful by many measures, but taxpayers must clear several hurdles in order to access their refunds. Online self-serve tax preparation programs can be a challenge for individuals who don’t feel comfortable using or don’t have access to the internet, and many people desire in-person support. The questions on tax forms related to the EITC can be confusing, and according to Impact America’s executive director, Sarah Louise Smith, “Many low-income households are eligible for the EITC and other tax credits but are unaware of their existence and thus do not apply for the annual refunds. Moreover, many who do not have the resources or knowledge to file their own taxes instead rely on costly commercial tax preparers.”

Paid tax preparers can cost taxpayers anywhere from $50 to $400, and when budgets are already tight, those fees detract from refunds that play a crucial role in the lives of millions of Americans. The cost is not always immediate, however. Accountants do not typically market themselves to low-income people, in part because it would seem unethical to charge a typical rate for a relatively simple tax return. Black says, “The problem with that response from the accounting industry is that it’s left a vacuum that has been filled by a predatory industry of businesses who design their model to take as much of the refund as they can.” Predatory tax preparers charge higher fees in low-income neighborhoods than local or national averages.

Last year in Alabama, SaveFirst helped 9,081 families and individuals secure $7.9 million of the earned income tax credit and $15.6 million dollars in refunds overall. The program saved clients $3.6 million in tax preparation fees. While SaveFirst operates its sites in the Southeast, other VITA programs serve communities across the United States, helping families and individuals access the entirety of their refunds or avoid paying extra fees when they owe money to the federal or state government.

When Impact America piloted SaveFirst in 2006–07, founder Stephen Black and executive director Sarah Louise Smith recognized the need for a tax preparation alternative in Birmingham and Tuscaloosa, but they saw a broader societal need for purposeful civic engagement experiences as well. The organization drew upon “the tremendous capacity for creating substantive societal change through the concentrated efforts of college students.”

Many college graduates have no substantial connection to low-income, working families. When they engage in intentional service learning, their experiences can influence the way the see the world into which they graduate. With SaveFirst, volunteers and site coordinators better understand the low-income populations they work with and their own efficacy as advocates and change-makers.

Predatory tax preparation, exploiting low-income people’s lack of access to education or resources to complete their own taxes, Black says, “is allowed to fester because people in power, and people with relationship to people in power, don’t know anything about it, because it only operates in low-income communities that don’t have the same sort of voice in the legislatures.”

Black argues that the purpose of SaveFirst extends beyond the provision of a service. Rather, the initiative leaders intend to develop a generation of policymakers, business leaders, social workers, and engaged citizens who have a deeper understanding of the causes of poverty because they have connected with families and individuals who have experienced financial hardship. “The effect it has on the participants, the central purpose of the initiative, and the reason we put so much time into recruiting hundreds of college students, is that on a fundamental level, for thoughtful policy to be crafted that affects the majority of Americans who work paycheck to paycheck, we need a much stronger connection and commitment from college-educated America.”

Without the burden of tax preparation fees, Kayla Bradford can allocate the entirety of her refund to building the life that she imagines for herself and her children. She started savings accounts for her children, depositing $200 into each one. She recently visited her new apartment, purchased some furniture, and set up her utilities. “I came from homelessness, from not having anything at all, to having a lot more than what I anticipated having, and I don’t want to stop here. I want more. I want a better future for myself and my kids,” said Bradford.

Refunds make a substantial difference in the lives of millions of Americans like Bradford, and every day at the tax sites, my volunteers, fellow site coordinators, and I engage in deeply personal conversations with clients while reviewing sensitive financial information. Personal finances offer a unique and sometimes unexpected window into life hardships and the inadequacies of the social safety net. An on-the-job injury is reflected in itemized medical receipts and lower wages. A woman whose son was a victim of gun violence needs to file three years’ worth of returns because she lost track of her records after her traumatic loss. The man whose financially dependent disabled brother passed away in November has to figure out how to pay the penalty for his brother’s lapse in health insurance during the final months of his life.

We explain the 1040, the Affordable Care Act, the earned income credit, and various tax forms. We also discuss aspirations, the challenges of raising preteens, and daily life in towns and cities across Alabama. These iterative conversations move us beyond the individual and reveal the systemic nature of poverty. This is how our volunteers’, and our own, perspective on barely getting by in America changes, day by day.

We meet a real need that many Americans aren’t aware exists. We also build relationships that expand our conception of what it means to experience poverty, and, Impact’s leadership hopes, we will become advocates for further change.

Correction, April 17, 2018: This piece previously stated that Americorp was founded in 1965. Americorp was actually founded in 1993. It incorporated VISTA (Volunteers in Service to America), a volunteer organization started in 1965, at that time.