IV. Current Challenges

Through desk research, IRS data, and expert interviews, we identified three stages that posed difficulty for people to file their taxes, and within those stages, we broke down the different challenges people face: 1) Making sure Americans know that refundable credits are available (outreach, data, client confusion and lack of trust); 2) Getting people to the right door (lack of coordination, VITA rules); and 3) Getting people through the tax filing process (difficulty scaling, the pandemic). An investment in all three is required to ensure Americans receive the assistance they need, and maximize the benefit of refundable tax credits. If there is significant outreach but insufficient assistance, or insufficient outreach yet an increase in assistance, there will still be an uptake gap. Therefore, it is essential to scale up all three.

1. Outreach

Government and non-profit organizations spend millions every year on outreach to encourage participation in tax-administered benefit programs, such as the EITC. Nevertheless, take-up rates on these programs remain low. Current outreach efforts are mixed in increasing take-up for the EITC and CTC.

Multiple organizations have conducted outreach experiments to assess which strategies would best improve participation. The California Policy Lab conducted an experiment to “nudge” eligible households to enroll in the state and federal EITCs, and found little difference in tax filing (however, they did not have the option of simplified filing). They did note that government outreach was moderately more successful than outreach by community organizations. In another experiment, researchers found that “IRS letters about free tax preparation modestly increased filing.”

Recent outreach sending non-filers to the Code for America CTC portal (GetMyCTC) provided additional insights. This outreach clearly demonstrated the importance of government outreach combined with actionable information and a simplified process. The biggest driver to the Code for America portal was messaging and advertisements from the White House, Social Security Administration, states, and cities, indicating that trusted government messengers with a connection to assistance can move the needle. Many interviewees mentioned the importance of a government source of information, as the IRS can be intimidating, and knowing that the information is correct is essential. Combining government outreach with validation from community-based organizations could be extremely effective. Additionally, the simplified process lowered the barrier to filing for many families, indicating that outreach combined with a simplified process is a powerful intervention for increasing uptake.

Moreover, evidence and experts point to the need for outreach tailored to the needs of the community. The Massachusetts Association for Community Action ran six Super VITA sites, which included other services, such as financial planning assistance, for clients. A review of these six sites found a need to “[c]ustomize outreach activity to draw attention to additional services available at the VITA site and target outreach to non-traditional clients,” which could include access to benefits. A non-profit leader we spoke with agreed, adding that “outreach needs to be tailored to each community and their cultural norms; it needs to be creative, too.” Another non-profit leader emphasized the need for outreach to come from a local partner that has credibility and trust in the community.

One former VITA site coordinator noted success from embedding tax filing assistance programs with other service providers, such as health clinics or HeadStart. Research suggests that these can be very helpful, but these interventions are not operating at scale. Furthermore, non-profit leaders emphasized the need for relying on known and trusted channels, such as multilingual radio stations, as well as including PTAs and faith-based organizations, to make warm introductions for clients to tax filing assistance programs. One community non-profit executive conveyed the importance of building trust over time, explaining that it isn’t simply enough to be around during tax filing, but to be embedded in the community over time. This trust builds when volunteers “meet [clients] when they’re available [with] expanded hours of services, expanded days of services, being around year-round, [and] patience.”

2. Lack of Data

As mentioned above, there is a significant lack of data regarding the VITA program in general. However, there is also a dearth of data when it comes to non-filers, who would be the target for better outreach. For example, the IRS and Census should publish the numbers of actual non-filers and where they are. While these data would not be perfectly accurate, by combining data from W2s, 1099s, and 1095s with counts from the Census, they could create a reasonable estimate of where the gaps are in filing. These data could be updated throughout the year so that non-profits, states, cities, and VITA can better target their outreach on an ongoing basis.

Additionally, the IRS does not provide information on where tax filers are in the process, and where their refund is. Publishing this information would help tax filers understand the process, and improve customer experience.

3. Client Confusion and Lack of Trust

Experts overviewed three broad challenges clients face when seeking tax filing assistance, and also discussed unique issues for specific communities, such as immigrants and Native Americans. One source of frustration for clients is determining eligibility for tax credit programs. For example, determining whether a child constitutes a “qualifying child” for an assistance program can be a challenge. In addition, income documentation required for some tax credits can prove difficult to produce, especially for gig economy workers. Even though VITA could help taxpayers understand and navigate these eligibility questions, these questions often stop taxpayers from seeking assistance. IRS online tools can also be difficult to parse because of legal jargon, so taxpayers may not understand which benefits they could receive by filing.

Immigrant and Native communities also face unique challenges to tax filing. Immigrant families, especially mixed-status families, must navigate whether they qualify for certain programs, balancing immigration questions with tax law. They consequently need access to volunteers who are multilingual and who understand the intersection of tax and immigration law.

Similarly, Native communities face barriers that prevent them from filing taxes through VITA. A First Nations Development Institute report on VITA sites in Native communities highlighted several problems: Geographic isolation, low volunteer retention rates, economically distressed communities, and distrust of the federal government. In 2007, the First Nations estimated that in some Native communities, as many as 70 percent of eligible filers failed to claim the EITC. Another issue for VITA sites in these communities is that funding does not go as far. The Oklahoma Native Assets Coalition, Inc., a nationally-serving Native non-profit that administers the national Native EITC/VITA Network, shared that due to a number of Native families not having adequate broadband access and newer devices to complete tax filings online, the digital divide is another barrier to tax filing during the COVID-19 pandemic.

In Native communities, there must be increased financial support for in-person and remote drop-off services, provided by Native VITA programs that Native families trust, for those who cannot scan and send their tax materials to remote VITA preparers. Over the past few years, the Native VITA programs that remained open have provided innovative remote and socially distanced tax assistance services that meet the needs of their communities. For Native-administered VITA programs, especially those serving Native families in rural areas, there is great need for increased funding to cover costs of, for example, a Native VITA program flying their staff and all their VITA equipment to remote Alaskan villages to serve families that are otherwise not receiving VITA services.

Taxpayers also commonly raise mistrust and fear of the government as a reason to avoid tax filing. The IRS is an intimidating agency, and the threat of an audit has a chilling effect. One VITA site coordinator stated that VITA would be far more effective if it could “immunize against the audit process to increase trust.” While this seems impractical, it demonstrates the fear taxpayers have of audits and the difficulty organizations have rebuilding trust. Beyond the IRS, taxpayers also have little trust in sustained government benefit provision. Changes in administrations and political rhetoric around benefit programs drive taxpayers away who do not believe programs will exist or will serve them.

Finally, VITA and Free File products are unable to provide clients with additional services, which means that many families choose for-profit providers. For example, Refund Anticipation Loans, though predatory, are very attractive products for many families accessing tax credits, particularly with delays at the IRS. If IRS services were faster and more transparent, the appeal of these products would decrease. Overall, our interviews highlighted that many tax filers are in need of real assistance due to opaque government processes, and that sometimes companies like H&R block are more accessible and trusted.

1. Lack of Coordination

Outreach, according to one expert, is most effective when messengers are “aligned on what our call to action is and what solution we’re providing.” The expert noted that the IRS does not promote facilitated self-assistance (FSA) as a standalone product, and the White House recently promoted GetCTC, not VITA sites. At the time, this made sense because many VITA sites had already closed. However, during tax season, households should have access to a broader suite of services if they want them. A central screening tool that all organizations could link to would enable outreach to be more trusted, cohesive, and effective. Additionally, allowing tax filers to switch stream mid-process and upgrade the level of assistance being provided would be helpful for those who get stuck.

2. VITA Rules

Some VITA rules actually inhibit effectiveness for low-income families. Requiring tax filers to provide a Social Security card as identification is a far higher barrier than other programs have, and many people do not have theirs on hand. Allowing a driver’s license to be used as identification could help. Matching funds, which will be discussed in section 6, are another barrier to increasing VITA access.

1. Difficulty Scaling

Experts suggest that three factors limited VITA sites from scaling: the volunteer model, IRS software, and funding. First, the current VITA program relies on volunteers, who require both training and certification. Increasing the number of volunteers and retaining them proves challenging, especially in communities that need the most assistance as volunteers, one expert noted, generally are university students, middle-class professionals, or retirees. In addition, the number of volunteers dropped significantly during the pandemic, and it is unclear how many will return. Many volunteers struggled to adapt to hybrid VITA assistance as sites went online during the pandemic.

Second, multiple experts pointed to the TaxSlayer software provided by the IRS for FSA as a pain point because of its inability to offer a varying, correct level of service and because of inaccessible legal jargon. Though this software is an improvement upon prior options, it still is not on par with the software paid preparers offer. In contrast, paid tax preparation services are better able to triage their services through their software and use language that is more accessible for taxpayers. One non-profit leader said a platform must utilize “non-legalistic, non-code language.” Unlike the IRS, “TurboTax has a great interactive software product that works really well and cuts through Mumbo Jumbo.” Another spoke to the Code for America tool being successful because it “didn’t use IRS jargon [or] get bogged down in government bureaucratic language.” Experts said increased funding could be used to create a new IRS-owned software, which could then be upgraded as needed.

Lastly, the necessity of matching funds in VITA poses an important challenge. Smaller organizations are often unable to scale donations quickly, and are therefore unable to absorb additional funding. Importantly, TCE sites are not required to provide matching funds.

2. Pandemic

The pandemic created novel problems for VITA that impacted both volunteers and clients. As one expert put it, “VITA stands for volunteers and the whole volunteer pool has really dried up.” As VITA services moved online, volunteers struggled to adapt because of digital literacy and technological resources. As sites began opening up, problems still existed. Some volunteers felt uncomfortable working in person, and did not return. The necessity for social distancing during the pandemic also decreased the capacity of VITA sites, which already tend to have overwhelming demand. As a consequence, both the number of returns filed and the number of volunteers plummeted during the pandemic. Similar problems emerged for clients. As VITA services moved to Zoom or through the phone, clients needed their own devices and Internet access. Even if they could access help, many clients struggled with digital literacy.

Beyond VITA, the pandemic also hampered the operations of the IRS more broadly. Backlogs in tax return processing built up, and IRS call response rates dropped as the IRS workforce had to adjust to COVID protocols. In addition, the IRS struggled to ramp up its employment to deal with backlogs and faced an unprecedented rate of retirements. Although some of these problems will come and go with the pandemic, COVID exposed systemic areas for reform, such as creating an adequate IRS workforce, reducing the need for manual tax return reviews, and modernizing systems.