Typically, we think of the IRS as a tax collector. But actually, the IRS is the nation’s largest administrator of anti-poverty benefits for workers and families with children. The IRS was responsible for issuing stimulus checks, and in 2021 it provided more than $700 million in child tax credits, earned income tax credits, and similar payments. Administering benefits through the tax code has its advantages. When advance payments for the Child Tax Credit were made available last summer, 39 million households representing 88 percent of U.S. children received their monthly payments automatically, without having to do anything other than file taxes (to learn more about those who don’t regularly file taxes, click here).
Although there are free filing options, most tax filers pay to file their taxes - either they pay a tax professional or else they pay to use tax preparation software. This is true regardless of how much or how little one earns; in 2010, over half of individuals earning less than $30,000 annually relied on help from paid preparers. Tax filing is stressful, it can be complicated, and often people are afraid of making a mistake that could cost them later so they are willing to pay for help. Despite bipartisan support, the tax preparation industry is mostly unregulated. This leaves many low income consumers unprotected from high fees, low quality services and fraud. As a result, many households who receive public benefits administered by the IRS pay to receive them, eroding the net value of these benefits.
For over 50 years, the IRS Volunteer Income Tax Assistance (VITA) program has provided free, in person tax preparation services to individuals generally earning $58,000 annually or less with an over 90% accuracy rate. Last year, tens of thousands of VITA volunteers working at 2,800 VITA sites across the nation prepared nearly one million returns for eligible filers and generated $1.7 billion in refunds.
While the IRS VITA program excels at providing high-quality free tax preparation, VITA programs only reach a very small percentage of those who are eligible. Over 100 million households qualify for free tax filing services available through the IRS. However, VITA sites are not available in every community and where sites are available, most report struggling to meet demand.
United Way Worldwide and New America’s New Practice Lab are currently partnering for a three month design sprint to identify how to make quality, free tax assistance more accessible to low income filers. In this effort, we suspected that there would be geographical locations in the country where there would be limited access to VITA sites. We scraped data from the IRS’s VITA site locator — thanks to our partners Code for America — and plotted the site locations on a national map. Needless to say, there were more VITA sites in more densely populated areas and low rates of VITA sites in the center of the country and rural communities.
Looking at this map, we see that the traditional VITA program model, where volunteers meet with clients in-person and prepare returns one at a time, isn’t sufficient for all communities, and virtual assistance models are necessary to expand access and scalability.
United Way offers free virtual tax assistance through its MyFreeTaxes program, which offers a version of VITA the IRS calls “Facilitated Self Assistance” (FSA). FSA is a model where eligible filers can file their own taxes online with assistance provided by VITA volunteers as needed via email, live chat, or phone and video support. MyFreeTaxes is mobile friendly and has helped 1.3 million filers access $2 billion in credits and refunds while saving $260 million in filing fees since 2009.
Code for America’s GetYourRefund program is another example of a virtual VITA program model. It pairs FSA with a version of the VITA model that is available virtually, enabling tax filers across the country to have their return prepared for free by VITA volunteers online.
In addition to increasing access to VITA geographically, FSA is cost effective and efficient. FSA also allows VITA programs to leverage limited volunteer capacity efficiently, as FSA filers who access assistance typically spend less than 15 minutes with a VITA volunteer, compared to the full hour it typically takes a volunteer to file a return via traditional VITA.
Many filers are already comfortable filing their own return using guided software and are well-positioned to benefit from FSA. In 2021, 65 million filers e-filed their own return using online software. So we believe that there is a real opportunity to increase the number of tax filers who benefit from high quality and free assistance provided by the IRS.
FSA VITA has the potential to dramatically scale access to VITA services across the country, including in rural communities. While traditional VITA is critical to ensuring access to tax benefits for individuals and communities who lack sufficient digital connectivity or prefer in-person assistance, people across the country still need other options. Increased investment in FSA by the government and practitioners interested in benefits access can ensure more families and communities obtain all the tax benefits they are owed.
Interested in adding FSA services to your VITA program? Check out these materials from the IRS.
This blog was first published by the New America Foundation. It was co-authored by Nikki Zeichner, New Practice Lab’s Product Director, who leads discovery-focused design sprints with nonprofit and government partners.