Boosting Earned Income Tax Credits participation to combat poverty & build community

1 in 5 Michigan households aren’t claiming tax credits they’ve earned — but we can do something about it

Authors: Brian Rakovitis and Madeleine March-Meenagh

State and Federal Earned Income Tax Credits (EITCs) are important anti-poverty programs that provide financial relief to hard-working, low-income Michigan households. At an average EITC value of $2,461 per federal income tax return and $150 per state income tax return, these households earned nearly $2 billion last year in State and Federal EITC refunds.  

Despite these credits’ significant financial impact, nearly one in five eligible Michigan residents did not claim these credits in 2020. The estimated 185,000 Michiganders who did not claim their credits missed out on thousands of dollars for their households. Recent temporary changes to eligibility mean more Michigan residents now qualify for these credits in 2021 — refunds that these households would have used to build savings, pay down debt and cover household expenses.

Some communities are less likely than others to recoup the refunds they’ve earned. Administrative data shows that individuals who live in rural areas, are self-employed or are not proficient in English are among those most likely not to claim their credits. Confusion over eligibility or lack of awareness significantly contributes to why individuals do not claim their credits. Empowering people to claim the EITC and other important tax credits, such as the Child Tax Credit (CTC), Homestead Property Tax Credit (HPT) and Home Heating Credit (HHC), can connect Michiganders with thousands of dollars they’ve already earned.

Reaching these individuals is a critical first step in increasing EITC participation — promoting awareness alone fails to change participation rates significantly. Research shows that expanding free tax preparation services and utilizing administrative data to target informational nudges improves EITC participation. 

Fortunately, existing free tax preparation services can quickly increase capacity through a combination of direct funding and AmeriCorps members to serve more clients. Funding will enable sites to expand their hours, locations, service options (virtual, drop-off or in-person) and even season length. Ramping up existing AmeriCorps programs will provide sites with low- or no-cost alternatives to bring on full-time personnel to support their free tax preparation services. Finally, communities working in partnership with the State can use administrative data to enhance local outreach efforts and encourage these households to file their income taxes, even when they’re not legally required to do so.

Expanding free tax preparation services will connect those EITC-eligible households with the resources to recover from their current financial hardship. By investing in this expansion, the State will have the opportunity to reduce poverty across Michigan significantly — and put hard-earned dollars back into the pockets of Michiganders!For more information about how your community can support the expansion of free tax preparation services, please contact Brian Rakovitis or visit our Michigan Economic Impact Coalition webpage.