Every year, low income taxpayers—many of whom are credit union members or potential members—leave billions of unclaimed dollars with the Internal Revenue Service, either by not claiming the Earned Income Tax Credit (EITC) or not filing at all.
In 2004, 21 million taxpayers claimed some $39 billion in earned income tax credits. However, the IRS estimates that three to five million more taxpayers are not applying for the EITC. In other words, an approximately six to nine billion dollars is left unclaimed! Credit unions that can help members claim their EITC tax refund can not only deliver significant value to existing members but provide an enticing service to potential new members.
The Earned Income Tax Credit
The EITC was created in the mid-1970s to encourage families to reduce their dependence on welfare programs. Unlike most other credits in the IRS code, the EITC is refundable, which means taxpayers can use the credit of up to $4,400 to offset any tax liabilities and still get a cash refund for the excess.
The complicated filing process, however, leaves many would-be recipients of the EITC refund dumbfounded. To qualify for the EITC, tax filers must meet certain criteria for taxable income, family size, and age of children. The criteria also vary based on whether one files jointly or separately. Although low income tax payers generally have simple tax returns, the EITC guidelines are unnecessarily complex. The result: many potential recipients do not file for the refund.
The Opportunity for Credit Unions
Helping members obtain their EITC refund represents a significant opportunity for credit unions to provide a valuable member service. By providing professional tax filing assistance, credit unions can not only strengthen their relationships with existing members but also attract new members who would benefit from the program.
A number of credit unions already offer this tax service to their members. According to the National Federation of Community Development Credit Unions, more than 111 credit unions provided valuable free tax return assistance to low income families in 2005, “making a difference in their communities and the lives of others.”
Reaching out to these low-income and often un-banked individuals can be the start of a lasting relationship. For example, one small but effective way to expedite the refund process is to establish an account for direct deposit. Once the account is established, a credit union can work with the individual or family to promote asset-building behavior and provide financial education.
By turning a seemingly negative activity – filing taxes – into a positive and educational financial experience, credit unions are able to meet an identified need of current and potential members, provide a social good to its community, and even develop new relationships – a winning combination.
Interested in learning how much unclaimed money there may be in your area? Check this out.