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Self-Employment Tax Initiative Webinar

Innovations in Asset-Building: Learning from $aveNYC
Webinar

On Tuesday, August 10, 2010, CFED hosted a webinar on a pioneering strategy for connecting low-income households, including the self-employed, to asset-building opportunities. Tax time represents a unique opportunity to help low income households, including the self-employed, to save for the future. Throughout the United States, the thousands of free tax assistance sites have long struggled to connect low- and moderate-income families with asset building opportunities, while staying true to their mission of delivering high quality tax preparation services.

Since 2008, the City of New York has offered low income tax filers a unique matched savings opportunity called the $aveNYC Account. The $aveNYC Account provides a 50 percent match to filers at select free tax preparation sites who commit to a full year of savings. This initiative is intended to test the impact of an innovative policy idea: using tax-linked savings incentives to leverage medium-term savings for consumer-designated purposes. This initiative is designed for those tax filers who generally receive a significant tax refund.

This webinar presented a basic overview of the $aveNYC initiative, preliminary findings from the first two years of implementation, and provide concrete suggestions for implementing similar asset building programs at tax sites throughout the country.

This webinar is appropriate for practitioners who want to create new asset-building programs for this tax season.
Speakers included representatives from the New York City Department of Consumer Affairs' Office of Financial Empowerment and from Ariva, a South Bronx-based nonprofit that filed more than 800 free tax returns for self-employed filers and opened 302 $aveNYC accounts this year. Ariva is a CFED local partner in the Self-Employment Tax Initiative (SETI). The Office of Financial Empowerment (OFE) is the first local government initiative in the nation with a mission to educate, empower and protect residents with low incomes so they can build assets and make the most of their financial resources.

Click here for the archived webinar!

What We Learned: Presentation Q&A

For this webinar, our panelists were joined by 100 forward-thinking practitioners from VITA sites, nonprofits, IDA programs, credit unions and banks eager to learn more about New York City’s pioneering strategy for connecting low-income households to asset building opportunities: $aveNYC. This innovative policy experiment prompted a multitude of questions, comments and requests for more information from the audience. The powerpoint slides from the webinar can be found here. We hope the responses below will serve as a resource to those interested in learning more about implementing a matched savings incentive program at their own tax preparation sites.

Staffing Concerns: Tax Preparers and Asset Specialists

The following responses address questions regarding training and materials for tax preparers and asset specialists and practical issues concerning their operations at $aveNYC sites.

1. How did you go about training preparers for the self-employed Schedule C tax returns? All of the volunteers and staff at the VITA site are trained and certified by the IRS – they must take an online training called Link and Learn. There are three modules: basic, intermediate and advanced – the staff qualified to perform Schedule C preparation are certified through Advanced. Also, many volunteer preparers have backgrounds in accounting or have worked as paid tax preparers before. CFED’s Self-Employment Tax Initiative is developing a Resource Bank for tax preparation programs focused on self-employed tax clients. It will include a wealth of information on training and quality review around Schedule C and should be available online by September.

2. Is the Link and Learn training geared toward C-EZ or the full Schedule-C preparation? The intermediate module of the IRS' Link & Learn covers Schedule C-EZs. Select ARIVA staff were trained interanlly to prepare Schedule-Cs by veteran site managers with accounting backgrounds.

3. Were there any issues with the IRS - such as privacy concerns? Per IRS guidelines, tax clients sign "Consent to Use" and "Consent to Disclose" forms, which limit how we can use and share personal tax client information. All tax client information is stored securely at our sites in compliance wtih IRS regulations. This includes storage of hard copies of the tax documents as well as securely-stored electronic documents. The laptops we use for tax preparation are also wiped clean at the end of the season for further security. The IRS carries out routine tax site visits during the tax season to ensure our sites are in compliance with privacy regulations. $aveNYC participation forms and other paperwork are also stored securely in a space away from the public. The IRS forms and $aveNYC forms are stored separately.

4. What software did you use for tax preparation? TaxWise, the software used by the IRS, tax specialists and accountants.

5. Does the Advent software interact with TaxWise and pre-populate information? No, the two platforms do not interact. The asset specialists entered the client information using the Advent software to open bank accounts. This data entry was completed separately from the tax preparation process in which the tax preparers enter the data.

6. Is there an outline or curriculum for training the asset specialists? Doorways to Dreams created a training program for their tax season savings bond pilot program a few years ago and provided guidance as OFE was designing their own training. If you are interested in reviewing the OFE training documents used for the $aveNYC Account program please contact Janelle Richardson at jrichardson@dca.nyc.gov. CheckSpring was also involved in training asset specialist staff members responsible for opening the accounts—this was critical for making sure they were covered on the compliance side.

7. Did tax preparers assist individuals with making federal and state estimated tax quarterly payments for the self-employed? Depending on the clients' situation, preparers do explain the value of estimating quarterly tax payments.

8. How did asset specialists encourage opening accounts during quality review time? The asset specialists would inform clients of the opportunity to open accounts prior to tax preparation. During the quality review time, clients are informed of the refund value they should expect to receive. At that point, the asset specialist checks back in with the client, using repetition to make sure they understood the opportunity.

9. What types of organizational incentives were used to motivate asset specialists? During the 2009 tax season, OFE gave small grants to each of the participating organizations and then gave performance incentives based on the number of accounts they opened. They set an expectation that each organization would open at least 100 accounts; for every 25 accounts they opened above that threshold, they were eligible for another $500 grant. This method was shifted in the second year to account for the fact that each organization serves a different volume of clients. So, in 2010 each site was expected to achieve a minimum take-up rate of 10%— bonus payments were offered to sites who achieved take-up rates of 12% or more.

Client Concerns

The following responses address issues directly concerning potential $aveNYC clients including details about their financial characteristics, how the saving account affects them and how the loan program operates.

1. Is creditworthiness a factor to open an account or for those clients requesting the 4.5% interest secured loans? No, the loans offered are secured and the bank holds the CD as collateral so they face no risk. CheckSpring did not perform any credit checks but they did report to the credit bureaus in the interest of helping clients establish or rebuild credit.

2. Of the clients who participated two years in a row, how many had earned the 50% match? 86% of clients who participated two years in a row saved for the full year to receive the match.

3. Does the savings account impact public benefits? It most cases it does not, but asset specialists always advised clients to check with their benefits caseworkers and counselors. Asset limits vary depending on the benefits and the client's particular situation.  

4.  Regarding account openings in the first year, 151 of 177 accounts were funded by the IRS.  how were the other accounts funded? Clients whose $aveNYC account was not funded either did not receive a refund because of tax or child support arrears or other liens or tax preparation errors, or received their refund by check.  Those accounts were closed and are not included in the calculation of the proportion who saved for the full year.

5. Can you walk through an example of the low-cost loan? If a person borrows $200, does that reduce the principal of their savings or the match? No, if a person opened a $200 $aveNYC Account at tax time and later needed to withdraw $150, CheckSpring would prepare a secured loan on the $200 deposit. They would underwrite $150, calculate the interest given the 4.5% interest rate and charge the client the interest and have them pre-pay it. The client would then receive a check for $150 less 4.5% interest. The bank would not close the $aveNYC account; they would hold the $aveNYC money as collateral against the loan.

6. How many low-cost (4.5% APR) loans were used last tax season? In 2009, $aveNYC completed about 60 loans. So far this year, they have completed about 20.

7. How were these loans marketed at tax sites? This product is not marketed; if a client comes in after tax season asking to close their account or withdraw some of their funds, the bank will offer them the opportunity to take out a loan against the account in order to preserve their 50% match. Also, asset specialists were trained to inform tax preparation clients about this loan opportunity when describing the $aveNYC accounts to clients who expressed concern about not being able to withdraw their savings in the future.

8. What happened to the people who opened their accounts using tax refunds but then ended up not receiving that refund due to some error on their return? Typically, if the account was not funded by the September 31st quarterly report it was closed by the financial institution. In very few special cases, clients were allowed to fund the account directly at the financial institution.

9. Did the availability of loans play a significant role in the high level of filers who saved for the entire year? Yes, because asset specialists explained this option to clients interested in opening accounts. Many taxpayers expressed concern about being able to access the money in case of an emergency. $aveNYC clients had an average annual income of about $17,000. Understandably, for those clients, placing a few hundred dollars in a savings account would represent an enormous commitment. The loan option certainly made the $aveNYC accounts a more reasonable option to clients who were concerned about accessing the funds in an emergency.

Questions for the Bank

The following questions address inquiries concerning participating financial institutions.

14. How willing are banks to do the on-site bank account openings? The institutions that participated in the program were typically smaller banks with more flexibility in product design or those that already had a CD that allowed clients to make deposits throughout the year. OFE reached out to the state banking department, who sent out a letter to all state chartered institutions in New York encouraging them to work with VITA sites and reassuring them that on-site account opening processes were acceptable and encouraged. It is much more challenging to work with large institutions where changing policies or making exceptions is a much more bureaucratic, time-consuming process.

15. Who was the third party that allowed you to open the accounts on-site? Advent Financial Services provided the software needed to open the accounts on-site.

16. Were there any accounts that were opened not in compliance with your procedures? No.

Questions Concerning Program Funding

These responses deal with practitioners’ concerns about acquiring adequate funding and describe $aveNYC’s experience with fundraising.

17. Can you talk about the fundraising component of this program? Where did you get funding from and what was the case you made to garner support? In the initial year, OFE called on a number of major corporate donors that were already funding the OFE EITC outreach campaign. In subsequent years, they approached several foundations that have an interest in asset building: Annie E. Casey Foundation, The F.B. Heron Foundation, Living Cities, the Rockefeller Foundation and the Ford Foundation. To garner support, OFE hopes to answer larger questions of whether short-term savings can lead to continued savings and whether participants have a greater sense of control over their finances and thus make wiser short-term decisions to strengthen their financial stability. There is a good deal of federal support that goes toward wealth building for higher income people in the form of tax credits for home ownership, retirement savings and so on. There is very little federal support, other than IDA programs, for asset building for low-income people. OFE wants to bring attention to the lower-income spectrum using tax policy and to open up savings to those people who may not yet be ready for an IDA program. This model tests the idea that with sufficient structure, initial asset building programs for low-income families supported by government dollars can build flexible-use emergency savings and induce low-income households to save for the long term.

18. Where can other organizations interested in implementing these programs find funding? The NYC mayor’s office was just awarded funds from the Social Innovation Fund to replicate the $aveNYC model – to be called $aveUSA – in three other cities: Tulsa, Newark and San Antonio. So, for organizations in those cities, that program may serve as one potential funding source. For any funder with interest in asset building and tax policy, however, keep in mind that this is a very inexpensive social innovation: the only cost is actually giving the match and a small amount for the staffing required during the tax season. For those who run VITA sites already, it may simply be a matter of working with financial institutions to raise the match funds and raising enough in kind donations to staff the program.

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The 2010 Assets Learning Conference will take place on September 22-24 in Washington, DC. Diana Breen is attending and will gladly talk with other attendees about her work with $aveNYC. Cathie Mahon, executive director and deputy commissioner of the NYC Office of Financial Empowerment (OFE), is also attending and will participate in a panel regarding tax time opportunities for asset building.

For more information about this webinar, please contact seti@cfed.org.