When Tax Refunds Aren’t Just A Bonus, But A Lifeline

Cassandra, a single mother who receives the Earned Income Tax Credit, getting tax filing help CREDIT: COMMUNITY ACTION PARTNERSHIP OF THE GREATER DAYTON AREA
Cassandra, a single mother who receives the Earned Income Tax Credit, getting tax filing help CREDIT: COMMUNITY ACTION PARTNERSHIP OF THE GREATER DAYTON AREA

Tax time for many middle-class families usually means logging on to TurboTax or going to an accountant to see how much they owe or whether they might get a little refund. But for about 28 million low-income families, it means receiving the Earned Income Tax Credit (EITC), a once-a-year lifeline that can make the difference between making rent and homelessness, between losing a car or keeping it and your job, between buying children new clothes or going without for the next year.

On average, the benefit is $3,000, but it can be as much as $5,460. In 2012, about 6.5 million people were lifted out of poverty thanks to receiving the credit.

Who Gets Help

The lifeline of the EITC couldn’t have come too soon for Cassandra, a single mother of two children who is getting a second degree in the hopes of finding a new job. She moved from Florida to Ohio last year to be closer to her family, leaving behind her job as a surgical technician. When she arrived, she ran through the couple months’ worth of savings she had stored up while she struggled to find a new job. “I didn’t think, since I had two years’ experience, that it would be so hard to find a job,” she told ThinkProgress. So to get by she took out a loan on her car, but eventually struggled to pay that back alongside other expenses like bills and diapers. “When I filed my taxes,” she said, “it was getting to the point where the loan place was calling me and wanting their money back.” She was close to losing her car.


And then the EITC arrived. She filed for the credit as soon as she could — tax filing season began on January 31 this year, a slight delay compared to past years thanks to the government shutdown — and she got the money two weeks later. She was able to completely pay off the car loan, as well as some other past creditors, and still have a little bit left over. If she hadn’t paid back the loan, “I believe I would have probably lost my car,” she said. Given how much she has to run around during the day — going to a work program to qualify for cash assistance, attending school for a second degree in nursing, taking her daughters to and from daycare, and running errands — that could have been devastating. “I would probably not have been able to go to school and just have had to get a job as a waitress or something,” she said. The leftover amount after bills were paid let her buy some new clothes for her daughters and for herself.

Lilly Cardoza, also a single mother of two daughters in California, used her credit to pay off her utility bills, “my electric bill especially,” she said. She has also been able to stock up on food, particularly things to make lunches for her children, and put a bit away in savings “as a little cushion for us in the future.”

She works at a local affiliate office of Community Action Partnership, a network of agencies that serve low-income people. But it’s still difficult to make ends meet. Relying solely on her income makes it “tough to make money spread out and last,” she noted. The credit “goes a long way,” she said. “When you get a little extra, you can get extra necessities that your kids need, socks, underwear, extra shoes, whatever it may be.”

Who Gets Left Out

But not all poor parents can get the credit. Working people without children only qualify if they have very low incomes — below $14,300 for a single person — and only get a $264 average credit. Noncustodial parents are also often ineligible — even one who works full-time at the minimum wage can’t get the benefit. Given that Jesse Roque worked in 2010 and supported his three children, even though he didn’t live with him, he claimed the EITC and planned to share it with their mothers. But then the mothers claimed them as dependents, and because he didn’t live with them, he had to pay back the money, which he’s been doing since 2011. Now he lives with his newborn son and expects to get the credit, but it will probably all go toward paying back that past debt. He hopes to finish paying it off next year.


But back when he did get the credit, “it just helped me out,” he said. He would put it away for his children because “it’s not for myself at all, how I see it, it’s a little gift for them,” he explained. It allowed him to take them on trips or buy them gifts at Christmas and “know I have the money” to do those things.

And not all poor families see the full credit. A majority of people who receive the credit use tax preparers to file their claims, and the size of the credit has attracted an industry of preparers who can be incompetent or even unlawful and extract high fees, charging on average $300.

But as Angela Van Dusky found out, even registered preparers like H&R Block can eat into the credit. She’s a single mother who isn’t currently working after she recently gave birth to a premature son. She was told the fee for filing her return would take out $400. “It’s kind of upsetting, because $400 is kind of a lot when you’re not working,” she said. That means that the credit “doesn’t really make a difference to me,” she said, “with all the fees and stuff that they take out.” Any money she does see she puts toward paying the bills or buying what her infant and three other children need.

Consumer advocates have proposed fee disclosures so that tax filers know how much will be taken out of their return, and others have proposed capping how preparers can deduct from a refund. They have also pushed for more oversight and regulation of these preparers who don’t need licenses or to register anywhere.

And even with the success of the EITC in lifting families out of poverty, there are ways that it could go even further. President Obama has proposed expanding the credit to childless workers by doubling the maximum to $1,000 and increasing the income limit to about $18,000. Many of them would be noncustodial fathers like Roque.