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Erie FREE Taxes: Earned Income Tax Credit

Monday Feb 7th, 2022

Through the IRS Volunteer Income Tax Assistance Program (VITA), Erie FREE Taxes provides free tax preparation service to Erie County tax filers and ensures that every eligible filer claims the Earned Income Tax Credit (EITC). The EITC, one of our county’s most effective anti-poverty tools, lifts more than 8 million adults and children above the poverty line. It provides a cash credit that boosts incomes of low-to-moderate income workers, helping them meet their basic needs. For those who receive the credit, it may enable them to save for emergencies, pay down debt, or put a down payment on a home.

As the General Assembly prepares for another budget season, a major component of the final proposal should be a refundable state Earned Income Tax Credit (EITC). Like the federal Earned Income Tax Credit, state EITCs reduce taxes, and in many cases provide refunds, for low- to moderate-income working individuals and households.

At the local level, through programs like United Way’s Erie FREE Taxes, we know families count on their tax refunds to cover day-to-day living expenses, make home/auto repairs, pay down debt, and purchase furniture, appliances, and other household items. Local businesses benefit from the annual cash infusion, as do state and local governments. In the end, families that receive Earned Income Tax Credits realize improved education and health outcomes.

According to United Way of Pennsylvania’s most recent Asset-Limited, Income-Constrained, Employed (ALICE) Report, 2 out of 5 Pennsylvania households struggled to make ends meet before COVID-19. Sadly, ALICE is one emergency away from financial ruin, which came in the form of COVID-19 for many families. Lost wages resulting from reduced shifts/working hours, unemployment, child care and school closures, and the need to provide care to sick relatives created financial uncertainty for many Pennsylvanians.

While many have returned to the workforce, they still face a variety of economic challenges such as rising food, housing, utility, transportation, and child care costs. A state Earned Income Tax Credit would be a good first step to providing relief to working Pennsylvanians.

The benefits of earned income tax credits are more than just money in the pockets of those who work for it. Earned Income Tax Credits have been proven to enhance health and educational outcomes for recipient families. Studies show that the heads of households, experience reduced stress, eat healthier, and are less likely to engage in unhealthy habits such as smoking, resulting in improved health. For the rest of the family, additional income means the ability to purchase healthier foods and afford access to healthcare. Likewise, research suggests that children in families receiving EITCs are more likely to attend college and earn more as adults.

In addition to helping individuals and families, EITCs provide cash infusions to businesses too. Due to their needs, EITC recipients do not save their refund; they spend it on basic necessities at businesses in their communities. For small businesses, expenditures resulting from individual tax refunds means resources to make improvements, hire new staff, and increase inventory. These funds also “trickle up” to state and local government in the form of income, sales, and payroll taxes. These additional revenues, and the savings generated to programs from improved health and educational outcomes result in lower social spending. In time, this could mean tax cuts rather than unanticipated tax increases.

Despite the swift economic recovery from COVID-19, the costs of goods and services are skyrocketing, employers are struggling to find workers, and many households are being forced to make difficult financial and personal decisions. Like the federal Earned Income Tax Credit, a state EITC will provide financial relief to struggling households, incentivize work, and open the doors to new revenues for both businesses and the Commonwealth.

Twenty-eight states, including Delaware, Maryland, New Jersey, New York, and Ohio, offer an Earned Income Tax Credit to their hardworking citizens. It is time for the General Assembly to work in a bipartisan manner to implement this commonsense policy, which is a strong first step towards economic stability for over 40% of Pennsylvania households. For more information, please visit https://www.uwp.org/advocacy/eitc-study/ to review a study conducted by the Child & Family Research Partnership at the University of Texas at Austin, entitled Implementing a State Earned Income Tax Credit (EITC) in Pennsylvania: A Benefit-Cost Analysis.

Since 2007, United Way’s Erie FREE Taxes program has demonstrated strength as a family and community economic development tool. 2019 was a milestone year for the program, having reached a program value of over $100 million.

Erie FREE Taxes By The Numbers:

Program Value for Tax Year 2020:       $10.4 million

Total Program Value Since 2007:        $124.3 million

Federal Refunds for Tax Year 2020:    $8.9 million

Total Federal Refunds Since 2007:      $108 million

Filer Savings for Tax Year 2020:           $1.5 million

Total Filer Savings Since 2007:             $16.4 million

 

 

 

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