Through the IRS Volunteer Income Tax Assistance Program (VITA), Erie FREE Taxes Provides Free Tax Preparation Service to Erie County Filers and ensures that each 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 increases the incomes of low- to middle-income workers, helping them meet their basic needs. For those who receive the credit, it can allow them to save for an emergency, pay off a debt, or put down a down payment on a house.
As the General Assembly prepares for another budget season, a major element of the final proposal is expected to 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 working individuals and households with low to middle incomes.
At the local level, through programs such as United Way’s Erie FREE Taxes, we know that families rely on their tax refunds to cover day-to-day expenses, make home/auto repairs, pay off debts and buy furniture, appliances and other household items. Local businesses benefit from the annual cash injection, as do state and local governments. Ultimately, families who receive earned income tax credits have better education and health outcomes.
According to the latest ALICE (Asset-Limited, Income-Constrained, Employed) report from the United Way of Pennsylvania, two out of five Pennsylvania households were struggling to make ends meet before COVID-19. Unfortunately, “ALICE” is an emergency away from financial ruin, which has come in the form of COVID-19 for many families. Lost wages from reduced shifts/hours, unemployment, daycare and school closures, and the need to provide care for sick parents has created financial uncertainty for many Pennsylvanians. .
Although many have returned to the workforce, they still face various economic challenges such as rising costs for food, housing, utilities, transportation and child care. A state earned income tax credit would be a good first step in providing relief to working Pennsylvanians.
The benefits of earned income tax credits are more than money in the pockets of those who work there. Earned income tax credits have been shown to improve the health and educational outcomes of recipient families. Studies show that heads of families experience less stress, eat healthier and are less likely to engage in unhealthy habits such as smoking, which improves their health. For the rest of the family, extra income means the ability to buy healthier food and access health care. Likewise, research suggests that children in families receiving EITCs are more likely to go to college and earn more as adults.
In addition to helping individuals and families, EITCs also provide cash injections to businesses. Due to their needs, EITC recipients do not save their reimbursement; they spend it on necessities in businesses in their community. For small businesses, expenses resulting from individual tax refunds mean resources to make improvements, hire new staff and increase inventory.
These funds also flow to state and local governments in the form of income, sales and payroll taxes. These additional revenues and program savings generated through improved health and education outcomes translate into lower social spending. Over time, this could mean tax cuts rather than unexpected tax increases.
Despite the rapid 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, encourage work and open doors to new income for businesses and the Commonwealth.
Twenty-eight states, including Delaware, Maryland, New Jersey, New York, and Ohio, offer an earned income tax credit to their hard-working citizens. It’s time for the General Assembly to work in a bipartisan way to implement this common-sense policy, which is a strong first step toward economic stability for more than 40 percent of Pennsylvania households.
For more information, please visit https://www.uwp.org/advocacy/eitc-study/ to examine a study conducted by the Child & Family Research Partnership at the University of Texas at Austin, titled Implementing a State Earned Income Tax Credit (EITC) in Pennsylvania: A Benefit-Cost Analysis.
Since 2007, United Way’s Erie FREE Taxes program has proven itself as a tool for family and community economic development. 2019 was a pivotal year for the program, having achieved a program value of over $100 million.
Here is a breakdown of the value of the Erie FREE taxes:
• Program value for the 2020 tax year: $10.4 million
• Total program value since 2007: $124.3 million
• Federal refunds for the 2020 tax year: $8.9 million
• Total federal reimbursements since 2007: $108 million
• Savings for tax filers for the 2020 tax year: $1.5 million
• Total savings for filers since 2007: $16.4 million
Marybelle Martin is the Erie FREE Taxes Program Manager for United Way of Erie County.