Low income singles often overlook federal tax credit

A story published today in the Washington Post reports that many taxpayers, including low-income singles, are overlooking tax credits and refunds they can receive because of their low-income status.

The number of low-wage workers who qualified for a popular tax refund program rose 8 percent between 2000 and 2002, climbing by 1.5 million households, according to a new study by the Brookings Institution, which found that today's recipients are more likely to live in the suburbs than in poverty-plagued urban pockets.

The group said the growth in the number of recipients reflects rising unemployment during the period and sluggish wage growth, which made more people eligible for the refund. Also, public outreach efforts by community groups, business leaders and the federal government made more people aware of the refunds.

The Brookings Institution study found that recipients of the Earned Income Tax Credit were more likely to live in the suburbs than in the big cities, and were more likely to live in the rural South than any other place in the nation. About 6.7 million recipients live in the suburbs, 4.6 million live in big cities and 4.2 million live in rural areas, the Brookings study found. States with the highest percentage of eligible low-wage workers are South Carolina, Mississippi, Georgia and Louisiana, while the lowest percentages are found in the Boston-to-Washington corridor.

In tax year 2001, 48,674 households in the District, about 18 percent of tax filers, qualified for the tax credit, compared with 301,778 in Maryland, or 12 percent of tax filers, and 422,619 in Virginia, or about 13 percent, according to the study.

The Earned Income Tax Credit program was launched in 1976 by the Ford Administration. It has enjoyed bipartisan support and was expanded during the Reagan, Bush and Clinton administrations. It cost $36 billion last year.

Workers receive refunds under a sliding scale. Single wage-earners without children are eligible if they earn less than $11,230, for example, and married couples with two or more children are eligible if they earn less than $34,692. Low-wage workers can receive up to $4,000, either in a single refund check or paid in advance as extra income in their paychecks.

In 2001, 15.1 percent of all tax filers, or 19.1 million households, claimed the tax credit. About 20 percent of eligible recipients did not seek the refund, either because they failed to file the proper tax return with an earned income tax credit schedule, believed they earned too little money to qualify for a refund or had no deductions. Single people are most likely to fail to file for the refund, according to federal tax officials.

Many groups have been reaching out to workers to inform them of their eligibility. A new employer group, Corporate Voices, which has 45 members, has distributed what it calls a "toolbox" for employers to use in helping their employees take advantage of the program. Its members include CVS, TJX, Marriott, Fleet Bank, Bank of America and Allstate.

"Employers are interested in it because it enhances the stability of working families," said Donna Klein, president of Corporate Voices and a longtime Marriott Corp. human resources executive. "If families have more add-on income -- a $2,000 or $4,000 check -- for some families, that can buy a car. Does a car impact an employee's ability to get to work? Yes."

Klein said that getting additional income as a tax refund also allows people to pay off credit card debt or establish a rainy-day fund. She said many employers aren't able to raise wages because of competitive pressures.

TJX Corp., which owns the TJ Maxx and Marshall's retail chains, for example, began its outreach effort as part of its embrace of the welfare-to-work program in 1997. It has circulated information about the tax credit program to 90,000 workers at 1,700 work locations and informs all new hires about the program. It also posts information about free tax-advice locations to help workers avoid high-priced tax-preparation services, Patrick Flavin, manager of government programs for TJX Corp., said at a news conference in December.

Jenelle Ross, 21, an office clerk in Chicago who earns $5.50 an hour, said she was "excited" to learn last year that she would receive about $2,000 in a tax refund. She said she used the money to pay off credit card debt and part of her student loan. She said she expects to receive about the same amount this year, and hopes to use the money to buy some furniture for her new apartment, the first home she has had on her own.

"I was staying with my mother, and now I live by myself," Ross said, adding that the tax-credit program had helped her clean up her credit so she could become eligible to rent the apartment.

Federal tax officials said they hope to work more closely with employer groups to improve the flow of information to employees.

"We've just started to tap that well," said David R. Williams, director of the Earned Income Tax Credit program at the IRS.

The various efforts are making "more people aware" that they are eligible for the credit, said Alan Berube, senior research analyst at the Brookings Institute's Center on Urban and Metropolitan Policy and a co-author of the study. "Corporate Voices has hit one of the most efficient ways to get the word out -- doing it through the workplace."

He said that for many workers, the refund is the "difference between making it or not."