This past weekend, the much anticipated American Rescue Plan Act passed the Senate; it will likely be signed into law by President Joe Biden later this week. The $1.9 trillion proposal has several major temporary tax provisions that will greatly benefit households with low and moderate incomes. They include an expansion of the Earned Income Tax Credit, another round of stimulus checks, and a broadening of the Child Tax Credit.
On paper, the Child Tax Credit expansion alone is expected to cut child poverty nearly in half. But we already know that there are millions of families who could miss out on this important benefit. Approximately eight million eligible households still have not claimed their stimulus checks, something President Joe Biden has indicated he wants to address. Many of these households are some of the poorest in the country and include families not required to file income tax returns. Excluding nonfilers from stimulus benefits marginalizes those who could benefit the most from government support—and means millions of children remain in poverty. This newest round of stimulus policies doesn’t have to be this way. During the pandemic, we at Code for America have learned a lot about overcoming challenges in reaching families with low and moderate incomes. To meet an unprecedented need for tax system assistance when the first stimulus package passed, we rapidly scaled GetYourRefund from four to over 100 Volunteer Income Tax Assistance program (VITA) partners to help more households access the stimulus. Based on our learnings, we’re offering three recommendations that would get flexible cash into the pockets of people who need it most. Put together, they can significantly reduce poverty—on paper and in reality.
Outreach needs to be targeted, informed by data and research, and paired with high-quality services
To get the next round of pandemic relief benefits to those who are most marginalized, the government first needs to determine who is most likely not to claim these benefits, and then leverage data and best practices to reach these households and connect them to services that can help them overcome barriers to filing.
This process was critical when Code for America launched GetYourRefund. Before building anything, our team conducted interviews and qualitative research to better understand why so many households failed to claim the Earned Income Tax Credit (EITC). One popular conception is that these households are just not aware of this benefit, but we found that this was only part of the story. Although many families are not aware that claiming their taxes can help them access additional cash support, we know now that awareness alone is insufficient. Even when they know that cash resources can be accessed through tax filing, many families are unable to claim the credit because they are dealing with traumatic experiences in their lives and face systemic barriers in overcoming the complexity of the tax filing process. Expensive and predatory options for help with filing create further stress. Nonfilers who have been marginalized by our institutions need trustworthy, accessible, and thorough tax prep services to help them navigate barriers to filing for free. We built GetYourRefund specifically to meet the needs of these nonfilers, and to help them access the flexible cash to which they are entitled.
To connect marginalized nonfilers to GetYourRefund’s services, we ran small outreach experiments with partners whose clients are most likely to reside in the EITC participation gap; in particular, SNAP recipients are much more likely to be nonfilers and belong to households with lower income. In our initial pilot, we partnered with Code for America’s own GetCalFresh program; an external partner, Fresh EBT by Propel, a free mobile app that helps over 4 million low-income families across the country manage their SNAP benefits; and the Virginia Department of Social Services. GetCalFresh and FreshEBT clients received in-app referrals, text messages, and emails. The Virginia Department of Social Services ran an informative texting campaign about the EITC, targeting individuals enrolled in the state’s SNAP program.
By the end of the initial pilot, these experiments helped over 600 SNAP recipient households access their EITC tax benefits. Most importantly, we successfully reached nonfilers and people who haven’t filed in a while through all three efforts; approximately half of clients reached through SNAP partnerships requested help filing for one or more of the past few years (1). In comparison, our other outreach efforts yielded a much smaller proportion of responses from marginalized nonfilers or filers who have lapsed in recent years. Overall, of the 6,290 full service returns that came from other outreach sources, only 14% requested help filing taxes for a previous year.
Clearly, working with public benefits agencies can help us connect nonfilers and other households with low income with the high quality tax prep services they need; but this outreach could be even more effective if we could narrow our efforts to those we know have not yet filed their taxes. This tax season, in partnership with the IRS, we are also running some small experiments to contact EITC-eligible nonfilers with information about GetYourRefund. Direct outreach to individuals who we know are actual nonfilers is the gold standard—bringing them from marginalized to the forefront. The IRS has this information and should do this type of outreach regularly, through multiple channels, and with tested and effective messaging.
Furthermore, the IRS, state tax agencies, and other government agencies could collaborate to reach nonfilers. This collaboration would be especially important for reaching marginalized nonfilers with limited or low income who may not have a W2 or 1099 on file with the IRS, and so would otherwise not receive the IRS’ nonfiler outreach. Some nonfilers might also already be on the IRS’ nonfiler list, but be fearful or mistrustful of receiving outreach directly from the IRS. They might see social service agencies as more trusted or familiar sources, and thus they might be better and more successful messengers for this outreach for certain nonfilers. To accomplish this, state social service agencies could securely share client information with state tax agencies; the tax agencies could offer an affirmative or negative response on their filing status. This would then empower state social service agencies to do direct outreach to nonfilers to assist them in getting crucial tax benefits. This type of intergovernmental data sharing could become even more important for new tax benefits in the American Rescue Plan, particularly for enrollment into the monthly or periodic Child Tax Credit payments.
Reduce client-facing barriers to tax filing by leveraging data sharing and tech enhancements on the backend
Once state and federal agencies have contact with nonfilers they need to make it as easy and user-friendly as possible for clients to navigate and complete the tax filing process to actually receive their tax benefits. GetYourRefund has accumulated extensive data on the various barriers clients face that cause them to drop out of the tax filing process, and many of these roadblocks can be alleviated by the IRS and other government agencies through administrative changes and better leverage of technology behind the scenes.
Here’s one example: for many households with low income, ID verification is one of the biggest barriers to completing the tax filing process. We know that gathering photo identification and social security cards for all the members of a household and uploading them into GetYourRefund’s system can be a daunting challenge. If the IRS developed an internal backend system to do ID verification through public and private sources without requiring filers to submit these documents, it would help many more individuals successfully complete the tax filing process. There already exist private sector services that could do this, and the IRS should explore adopting one or more of them in the future after ensuring that those systems work for this population. Many current ID verification methods do not work for GetYourRefund filers due to credit and telephone record checks.
“I don't have a W2 for my 2019 job, only check stubs”
Another major barrier for tax filers is easily accessing all their tax documents. Finding W2s, 1099s, and other required documents can be difficult for filers with low income that change jobs frequently or do not have a stable address. Last year, GetYearRefund found that approximately 70% of filers struggled at this step in the tax filing process. An additional 32% of filers who said they had a job told us they did not have the required employment documents. This year in particular, access to prior tax documents is more important than ever. Without having access to their 2019 earned income figure, tax filers could miss out on thousands of potential dollars they are entitled to this year.
“I need help, with forms, I don't usually file taxes, but am doing so this year to get a stimulus check.”
If the IRS could make access to online services like GetTranscript easier for filers, it could help remedy this issue. Right now, filers without traditional credit histories—and even many filers with more traditional credit histories—have difficulties navigating the security protocols for the service to access their prior-year tax transcripts. For example, filers need a credit or debit card to successfully verify their identities through the system, which excludes those who are unbanked. A phone number also needs to be registered with a current address, which makes it challenging for individuals with prepaid phones or phones being paid for by family members.
“I don't know what forms I need or how to get them. I've never filed before. I have a cash income from part time nannying for three families.”
Another step that the IRS and Congress could take to improve GetTranscript—after making it more accessible—is to make other current tax year documents available sooner in the year, so filers can leverage them to prepare their tax returns. Currently, they are not available until after the tax season is over. Making them available sooner would help marginalized tax filers and also improve the accuracy of filing if the IRS has this information sooner to cross-check. The IRS could also explore allowing trusted and secure third parties, like VITA programs and GetYourRefund, to access these forms on behalf of their clients through GetTranscript or other electronic means, making it even easier for them to navigate the filing process.
Lastly, the IRS made great strides in a short time and with few resources to stand up the nonfiler portal for stimulus payments last year and the Get My Payment tool. Continuing to improve on these tools for the next stimulus and periodic CTC payments portal should be a top priority. There should be an easy, streamlined, and mobile-friendly way to assess eligibility, apply, and track the status of payments all in one place. User testing and human-centered design principles should also be applied as the application is developed and updated to be as accessible to marginalized tax filers as possible.
Once we get households into the tax system, let’s make it easier for them to continue receiving their benefits in future years by streamlining the filing process as much as possible
As the IRS prepares to deliver a third round of stimulus payments and stand up a periodic CTC payment program, they should explore ways to make claiming these benefits and tax filing in general as simple as possible for households with lower incomes. The IRS nonfiler tool was a good start for a simplified and basic tax filing form. The IRS should build on this to develop tools that keep these families in the tax filing system and receiving their benefits annually.
For example, once families are enrolled in the periodic CTC payments program, the IRS could send regular reminders to beneficiaries asking them to recertify their continued eligibility in an easy and user-friendly manner. Even better, the IRS could receive data from other government agencies that automatically alerts them when income levels change, recipients move, or custody of a child changes, without putting the onus on the beneficiaries to report these changes. This new information could automatically update the household’s account with the IRS, but should also be presented to the taxfiler in a simple, editable format so that they can quickly make any needed modifications to their household information.
Congress should also explore ways to simplify eligibility for EITC and coordinate it better with the CTC before making permanent and historic changes to these tax credits. The EITC is particularly complex, even for some tax professionals. This has led to policymakers’ concerns about overpayments and led to a disproportionate number of audits of taxpayers with low incomes. Simplifying the eligibility of these credits (such as by using a straightforward definition of dependents) could help reduce the need for audits and make it easier to streamline the tax filing process, ensuring that marginalized nonfilers are more likely to get the benefits they have earned.
With the American Rescue Plan passed, members of Congress should explore ways they can help the IRS facilitate some of the recommendations highlighted here. Speed is of the essence as we try to get the financial relief of these new tax benefits to families struggling in the economic fallout of the pandemic. But as we’ve learned from the first two rounds of stimulus payments, traditional methods will not help millions of the most marginalized families to access these benefits. For them to benefit from these major changes and to truly cut child poverty in half, we will need to try new approaches like those informed by the work of GetYourRefund.
(1) Our team uses a request for help with prior year returns as a proxy for a client being a nonfiler or a filer who has lapsed in recent years, and thus being at high risk of missing out on the stimulus and other tax benefits.