Each year $12B in tax credits goes unclaimed by hardworking families across the United States. Yes, you read that right. In a country where families work so hard to make ends meet and have little savings to fall back on, there is $12B that isn’t making its way to them. That was the first problem we wanted to solve at Let’s Get Set.
We became volunteer tax preparers, conducted over 50 interviews with families, spoke with over 100 stakeholders, and poured through academic research. Tax-time insights from parents revealed their frustration. We spoke with Natalia, a new mom who spent weeks trying to get a question about filing status answered, navigating social service providers and Google searches, only to then file incorrectly. It also became clear that to help families claim this money correctly we couldn’t only increase their awareness of these tax credits, a finding confirmed in academic papers by Bhargava and Manoli. Instead we would need to go a step further and match them with reliable preparation methods, a step demonstrated by Goldin’s research.
First, families don’t know they are eligible so don’t file taxes at all. Did know that if you only have W-2 income and make less than the standard deduction you technically don’t need to file federal taxes? However, filing taxes is the only way to receive these credits. So, if you don’t file, you can’t access them.
Second, families lack the support to claim these credits successfully. Many parents are newly eligible for these credits, and run into new questions about status and dependents when filing that lead them to make mistakes. Again and again, we heard from parents about their fraught Googling efforts to find answers to their questions.
We built our tax-time tools specifically for parents at the highest risk of not claiming to tackle these two problems. First, we help them estimate their tax refund so they know they should file. Second, we match them with free tax preparation to secure it. Third, we make sure that they get their questions answered while filing.
Getting tax-time right this year will be crucial. Low-income families can expect to receive more than $4,000 in federal tax credits on average, and could be eligible for even more if they haven’t yet received their stimulus check or supplement for a new child born in 2020. There’s a lot on the line, and we are stepping up.