A Complicated System for a Transformative Policy

Despite the transformative impact of the ARPA-expanded CTC,¹ a growing line of research by scholars and advocates suggests that low-income families and others often face barriers to accessing tax credits like the CTC and EITC that many higher-income families can’t even imagine.² As we will show in this report, various bureaucratic, financial, and systemic barriers can make it difficult for these families to file a tax return, and fear of making a simple error can keep some from filing and claiming their much-needed tax credits.³

“Who wants to be so sick they can’t work? I never did… It's supposed to be easier for people like me to claim [the Child Tax Credit], but I feel like they forgot about us, us raising our grandchildren.”
– Colleen, 57, receives disability benefits, 1 grandchild, <$25k annual income

Even when tax returns are quite basic, complex language and processes create unnecessary barriers and cultivate a sense of confusion or even fear among many low-income filers. Errors in claiming the EITC can lead to people receiving frightening audit or review letters. Indeed, low-income families are five times more likely to be audited than higher-income families, and Black tax-filers are more likely to be audited than non-Black tax-filers.⁴

Our research reveals that immigrant families encounter distinct challenges finding an appointment to obtain Individual Tax Identification Numbers (ITINs),⁵ language barriers to understanding how to access tax credits, additional eligibility requirements, and concerns about adverse consequences for claiming tax credits.⁶ Furthermore, many families experience unnecessary and unique complexities in determining who should receive child-related tax credits when parents and relatives from multiple households are involved in raising a child.⁷ Recent research suggests that among lower-income families, families of color—particularly Black families—are more likely to encounter such complexities in determining their eligibility for tax credits, which can further entrench existing racial income inequities.⁸ While businesses, business owners, and consumers benefit from higher profits and lower cost items thanks to these low-wage workers, the workers themselves continue to struggle to make ends meet.

Financial barriers to tax filing also exist. This includes the high cost that tax preparers charge, which are often inflated when a tax filer can claim the EITC despite the relative administrative ease of claiming the EITC on a tax form for experienced preparers.⁹ Even when our interviewees paid $400 or more for tax preparation services, errors by tax preparers were common and could potentially cost families hundreds or thousands of dollars. For all of these situations, finding help from a local Volunteer Income Tax Assistance program (VITA) can be helpful, but there simply aren’t enough knowledgeable volunteers or staff to serve the need. Ironically, many of these families may only have one or two W-2’s and technically could file their own taxes.

Simply put, the process is much more complicated than it needs to be. Policymakers and tax administrators at the federal and state levels can implement several eligibility and administrative changes that would advance tax fairness and ease application processes. Below, we will present several ways to simplify tax credits and the tax filing process to start addressing these issues. We believe these changes would immediately reduce childhood poverty and material hardship and translate to various long-term positive outcomes for families and society at large.

“[W]e went in for every month [CTC advance monthly payments]. We kind of needed it at that point. And it was a really huge help.”
– Anni, 25, stay-at-home mom and freelance worker, 3 children, <$25k annual income