Stay Informed!

By Ethan Geiling on 04/28/2011 @ 03:30 PM

Tags: EITC, Financial Empowerment, Local Policy

“Umm…how old are you? Are you sure you know how to do taxes?” After taking one look at me, one of my first VITA clients was quite skeptical of my ability to prepare her taxes. I suppose her doubt wasn’t completely unfounded. I’m 22 and probably don’t look like someone who knows anything about taxes.

Over the past four months, I volunteered as a tax preparer for the DC EITC Campaign. Every Saturday afternoon I trekked over to Adams Morgan for my weekly four-and-a-half hour shift at the Jubilee Jobs tax site. Overall, I had a very positive experience and learned a great deal about both tax law and some of the hardships DC’s low-income residents face. Now that tax season is over, I want to share some stories, reflections, and takeaways from my experience. (For the record, my skeptical client ended up trusting my abilities, and even asked me to help her fill out her daughter’s financial aid forms after I finished her taxes). Finances are a very personal subject. They’re not something you generally discuss in depth with others. But they were something that I needed to discuss with all of my clients in order to accurately prepare their returns. Interestingly, when taking with someone about their finances, an invisible barrier is broken and they may start telling you all sorts of details about their lives -- details they normally wouldn’t tell a complete stranger. During my conversations with clients, which usually lasted between 30 to 90 minutes, I learned a great deal about their family structures, home lives, and financial welfare. Here are a few takeaways:

1. Many people are struggling to find steady employment in this tough economy.
   Many of my clients had been laid off in recent years and were trying to cobble together income from multiple jobs and sources. It was not uncommon for someone to come in with three or four W2s -- each with only a few thousand dollars or less -- from all of their employers over the year. Although many clients wished to be employed full time, their employers could only afford to hire them part time or for short periods. For example, I had one client who worked part time at a grocery store for half the year, had a short stint at a catering company, and occasionally worked the night shift as a security guard throughout. Sadly, stable employment was a rarity.
2. People use a wide variety of financial products beyond checking accounts to meet their financial needs.
   You often assume a checking account is the first and most basic account a person needs. I found that this often wasn’t the case. For example, a number of my clients used prepaid cards for their day-to-day banking instead of a checking account. They told me prepaid cards were easier to manage, let them pay bills simply, and provided almost all of the same features as a checking account, with very low fees. Surprisingly, a few of my clients had savings accounts but not checking accounts. They said savings accounts provided them with a structure to save, but they preferred to use check cashers and other methods for their day-to-day financial needs. In addition, one client told me that he purposefully doesn’t know the PIN for his checking account debt card, because he wants to make it difficult to access the money. He was essentially treating the checking account like a savings account in order to curtail impulse spending.
3. People recognize the value of savings, even if it is only a small amount.
   Even though almost all of my clients were struggling to make ends meat, many of them still understood the importance of savings. Many clients told me they planned to put aside at least a small portion of their refund for savings. One client even used Form 8888 to purchase a $100 savings bond with his refund (thanks D2D Fund for helping make this possible!). Few, if any, clients planned on saving their entire refund, which is understandable given their other pressing financial needs.

Doing taxes is kind of like a detective game where the goal is uncovering credits and deductions in order to maximize the refund. When preparing a client’s return, I would try to thoroughly understand the client’s financial situation so I could figure out every credit or deduction he or she might qualify for. And there are so many different credits out there! There are tax credits for children, education, retirement savings, housing, and more. Two credits in particular deserve a special mention:

• The Earned Income Credit: Since the DC EITC Campaign is named after this credit, it seems fair to give it a special mention. In addition to the federal EITC, the DC metro region has some of the country’s highest state EITCs, which are additional credits that build on the federal credit. The state EITC is 40% of the federal credit in DC (the highest rate in the country), 25% in Maryland, and 20% in Virginia (although the Virginia credit is not refundable). Montgomery County has an additional local credit that is 72.5% of the Maryland state EITC.
• The Schedule H Credit: Another credit that was particularly beneficial for my clients was the DC Homeowner and Rental Property Tax Credit, or Schedule H. This refundable credit of up to $750 is available to DC renters and homeowners with incomes below $20,000. Although $750 might not sound like much in the grand scheme of things, this credit was invaluable to many of my clients, especially given DC’s exceedingly expensive housing.

Overall, being a volunteer tax preparer was an incredibly valuable experience both for me and for my clients. I even had one 84 year-old lady who really wanted to leave me a tip, and couldn’t understand why I didn’t have a tip jar!

Thanks to our friends over at Capital Area Asset Builders and Community Tax Aid for organizing over 500 volunteers and making it all possible. I’m looking forward to volunteering again next tax season.

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