Tax turmoil leads to uptick in VITA usage

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President Trump’s tax cuts have resulted in taxpayer angst – and a resulting increase in consumers seeking help as the April 15 deadline draws near.

Some credit unions are reporting an increase in the number of consumers turning to the Volunteer Income Tax Assistance programs offered by CUs and other entities, which offers free tax help to consumers earning $55,000 or less.

Because the tax deadline is still about two weeks away and some consumers will apply for an extension, it is too soon to fully assess the impact the new tax laws have had on the VITA program, noted Gigi Hyland, executive director of the National Credit Union Foundation. In many cases, she said, refunds might be less because withholdings went down, meaning people have already pocketed and spent part of what they usually receive in one lump sum in the Spring.

“Where does this put people who live paycheck to paycheck? Will they not take care of their health because they don’t have money? Will they not be able to take care of bills? Will they have to take out a loan from their credit union? We may see significant impact on people who are in a financially fragile place.”

According to the IRS, as of February 22, the number of consumers getting a tax refund was down by nearly 5 percent, while the amount returned was down by 3.6 percent. Still, as of that time the average consumer’s refund was up by 1.3 percent over 2018.

But a new study from the Harris Poll, conducted in March on behalf of the National Endowment for Financial Education, found that of the 2,000 consumers polled, about one quarter (24 percent) received less money back this year than in previous years, while 15 percent received more. And 26 percent received about the same amount. NEFE said just 7 percent of those who have filed so far this year paid more on their federal taxes than they typically had in the past.

Higher traffic

Among those institutions offering VITA help this year is El Paso-based GECU, where business is booming. Ruby Alvarez, community development manager at the $2.8 billion-asset institution, said the credit union completed 9,206 tax returns in 2018 and the expectation is that it will exceed that number this year. With three weeks left in tax season, it had already processed 600 more returns than at that time last year – 6,662 for $12.9 million in refunds, an average of $1,900 ($200 more than last year).

“With all the tax changes, we have seen people that have questions, of course,” she said. “We are offering more sites this year, and we have partnered with many school districts. We have students who volunteer to become certified tax preparers. This includes high school and college students. We have 265 student volunteers this year from 12 high schools, plus some from the University of Texas, El Paso and a community college.”

All tax returns are reviewed by a certified reviewer, she added.

Similarly, $8.4 billion-asset Bethpage FCU in Bethpage, N.Y. has also seen an increase in requests for help this year, reported Robert Suarez, the credit union’s assistant vice president for community development.

“This is our 15th season, and we have brought back close to $21 million to our local economy,” he said. “Last year we did 2,200 tax returns, and total for the program [since 2004] we have serviced 17,000 taxpayers. We run an aggressive program – usually about 11 weeks. We work with community organizations and local libraries throughout Long Island.”

Bethpage is seeing “a lot of people” getting smaller refunds, or owing, this year, Suarez said. He said the changes to withholdings are one factor for this, along with the fact the standard deduction went up while the personal exemption was eliminated.

“As with anything else, when there is a change we have to let people know what happened,” he said. “There are many factors involved. In some cases people made more income. For the most part, there have not been a lot of major gripes once we explain the changes.”

The VITA program at Bethpage does not handle “complicated” tax returns, Suarez explained. He said one issue that arises frequently is letting individuals know they qualify for the Earned Income Tax Credit.

Awareness booster?

Despite the opportunity to expose new members to the credit union, IRS guidelines for the VITA program prohibit institutions from offering an explicit solicitation to join. Executives who spoke to Credit Union Journal, however, were quick to add that even if there is not a direct ROI in terms of adding memberships, hosting VITA programs leads to greater awareness of the credit union.

Still, Alvarez said GECU employees might talk VITA users about the importance of saving, but the credit union does not do any marketing or advertising to leverage its participation in the program.

“This is solely for tax preparation and financial literacy,” she said. “The VITA program is very important to us. We do not believe low- to moderate-income people should pay for this service. Many of these people are eligible for the Earned Income Tax Credit, but many do not even file.”

GECU is certified as a community development credit union and has a low-income designation.

Bethpage’s Suarez said although the credit union advertises the program, it is not used to solicit new members, nor does it issue rapid loans based on the projected refund. If someone needs a refund sooner than later, the volunteers are allowed to recommend they speak with a credit union representative about opening an account.

“The premise is empowering people to reach their financial goals,” he said. “It takes a while to build trust. People are taken aback when they get to the end and we tell them the service is free. They are so appreciative, and it is an eye-opener for them. Once you do that, people are open to finding out more about us.”

And, he added, it helps expose the un- and under-banked to the credit union’s services.

“By us being in the forefront building awareness every day, it makes an impact, even if the impact is not instant,” he said.

Hyland of the Foundation noted that increased VITA usage this year comes closely on the heels of the government shutdown, when many consumers unfamiliar with CUs saw the movement bend over backwards to furloughed workers going without a paycheck. She added that NCUF is currently examining how it can help credit unions take ownership of this issue at the national level, whether through case studies, best practices or other ideas.

NEFE’s research showed nearly half (47 percent) of Americans who get a tax refund will put it into savings, while 38 percent will use it to pay down debt.

“Based on research, a tax refund is the largest infusion of cash people get during the course of the year,” said Hyland. “The most frequent use is for deferred healthcare or catching up on bills. Some people go get the mammogram they have been putting off, or they pay off a credit card.”

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Income taxes Tax season Tax returns Tax preparation Tax refunds Tax debts Trump tax plan Donald Trump IRS NCUF Texas New York