March 26, 2004

UC study finds many Latinos missing out on tax credits

Credit could add millions of dollars to state’s economy

The federal government’s Earned Income Tax Credit is like a cash bonus for low-income working families. A University of California survey found, however, that many eligible Latino Californians aren’t receiving the tax credit.

The Earned Income Tax Credit (EITC) can boost a family’s yearly income by more than $4,000. Implemented in 1975, the original objective was to offset payroll taxes, which disproportionately affect lower-income workers, and to supplement wages, encouraging work participation. Welfare reform of the 1990s increased the importance of the EITC as a work incentive and wage supplement for the many families who were moved off welfare support to work in the low-wage sector.

UC consumer science specialist Karen P. Varcoe, California State Department of Health Services researcher Nancy B. Lees and UC Cooperative Extension nutrition, family and consumer sciences advisor Martha López found that only 36 percent of the eligible Latinos involved in their study received the tax credit in 2000.

Most of the eligible families in the study who did not receive the credit were unaware of its existence. One mother gave a typical response: “I don’t know about that,” she said. “I think we always had to pay (taxes).” Another participant said, “I don’t file taxes. That’s nothing but a hassle.”

Eligible families are those with incomes below 200 percent of the federal poverty line.  In addition, a family member must have earned income, must be a U.S. citizen or resident alien all year and cannot be a qualifying child of another person, among other requirements. To receive the credit, workers with or without tax liability must file a federal tax return that includes Schedule EIC, which is available at most libraries and post offices.

In 2003, 2.25 million low-income California families brought in $4 billion dollars in the form of Earned Income Tax Credit. The figures would be higher if all eligible low-income families claimed the credit. Varcoe said that, on average, 15 percent to 25 percent goes unclaimed each year.

“This means that we could potentially bring another $707 million to $1.3 billion into the state if everyone claimed their EITC,” Varcoe said.

For rural Hispanics, the rate of claiming the EITC is less than in other parts of the state. The potential for increasing EITC rebates in counties with large numbers of rural Hispanics is greater than 15 percent to 25 percent.

“This influx of federal dollars is important to the California economy,” Varcoe said. “Increasing access to the Earned Income Tax Credit benefits the individual families and the state as a whole.”

Varcoe, López and Lees collected the data on the Earned Income Tax Credit as part of the Rural Families Speak Project, a multistate study in its fifth year being conducted to assess changes in the well-being of rural families in the wake of welfare reform. Beginning in 2000, researchers from 15 universities, including UC, began gathering annual data about the participants’ financial and family well-being.  In California, 35 low-income Latino mothers with at least one pre-school child were interviewed for the study in rural Kern and Madera counties. Thirty-three of the families in the study were eligible to file for EITC, however, only 13 did.

“Our study findings clearly indicate the need for informational programs that reach out to rural communities,” Varcoe said. “Latino families need accurate information about the existence of the tax credit, eligibility, tax-preparation procedures and availability of low-cost or free tax preparation assistance.”

EITC information is being included in UC Expanded Food and Nutrition Education and Food Stamp Nutrition Education program efforts in some California counties. UCCE’s Spanish Broadcast and Media Services provides information in Spanish about EITC in written and audio formats on its Web site at http://espanol. ucanr.org, and to Spanish-language news media.

Low-income workers can get help filling out their tax forms at Internal Revenue Service-sponsored Volunteer Income Tax Assistance sites. To find local sites, call the IRS at 1-800-TAX-1040.

For more information, see the Internal Revenue Service Web site: http://www.irs.gov/publications/p596/index.html.

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