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Government Shutdown Could Slow Tax Refunds, Crimp Use Of Largest Federal Anti-Poverty Program

Poor

First Posted: 03/29/11 12:29 PM ET Updated: 05/29/11 06:12 AM ET

WASHINGTON -- A prolonged government shutdown could deliver a blow to many poor American families by limiting or delaying access to the federal government's largest anti-poverty program, the Earned Income Tax Credit.

Last year, 26 million families received about $59 billion from the EITC, according to the Treasury Department. While a broad majority of recipients may be unaffected by a possible government shutdown, which at the earliest could come little over a week from this year's April 18 deadline for individual tax returns, the sheer scope of EITC recipients means a vast number of households can still be hurt by any problems with poverty-relief payments. Such pain could throw a wrench into federal efforts to fight poverty during the worst economic downturn since the Great Depression.

The details of a potential shutdown -- including its possible duration and effects -- remain unclear. And even if Congress cannot strike a deal to continue government operations, some programs would still be designated as "essential" functions and permitted to continue running.

But it remains to be seen exactly which programs would be considered essential, and some operations of the Internal Revenue Service may not be. The IRS and the Treasury Department declined to comment for this report, but policy observers say that while it is very unlikely that a shutdown would prevent the government from collecting tax money, other key IRS functions -- including the delivery of billions in tax refunds -- could be affected.

"Our expectations are ... taxes will be processed as if there was no shutdown," said Cristina Martin Firvida, the director for economic security for AARP's government-relations division. "We're unclear whether or not there would be significant delays in refunds, including refunds that involve the EITC."

For many citizens, their tax refund from the EITC program represents a critical component of their annual income, sometimes as much as 30 percent of their household finances. The average EITC benefit is around $2,250, but some families receive as much as $5,666, depending on their circumstances. Benefits are scaled to the number of children a family has and the family's annual income. Individuals making $13,460 or less can receive $467 from the EITC, while families with up to three children can receive the $5,666 benefit if they make less than $48,362. For families at the lower end of the economic spectrum, the EITC can be essential for paying their bills.

Fortunately, most poor families file their refunds relatively early in tax season, hoping to receive government checks sooner rather than later. But many families still wait until the mid-April tax filing deadline, and roughly one-fourth of American households who qualify for the EITC never actually apply for it, according to Adam Perry, an organizer for Capital Area Asset Builders' DC EITC assistance program. Those unaware citizens often file much later in tax season, since they do not realize they are eligible for anti-poverty benefits in earlier months.

DC EITC provides free tax preparation and advice to low-income residents of the nation's capital, avoiding expensive tax preparation services, some of which have been flagged as predatory by consumer advocates. Perry says his group's efforts to reach out to potential EITC recipients continue right up to the filing deadline.

"The good news is that since its April 8, it's almost the end of tax time, so the majority of people will have it done," he said. "The bad news is, a lot of people still wait to the last date."

The consequences of a delayed refund for poor households can be devastating.

"If that check was to be delayed, that would cause a problem, much more so than for families making $100,000 a year," said Lee Davenport of OneEconomy Corp., a global nonprofit that attempts to advance the interests of low-income households through techonology. OneEconomy is currently promoting software that helps low-income households file their taxes online for free.

Perry said he is also concerned that the IRS may not be available to answer questions from taxpayers, noting that his volunteer advocates frequently confer with IRS experts about individual cases.

"The problem is, if the IRS call centers are classified as 'not essential' and they're not able to answer questions, the folks who need help the most are going to be the ones left to try and figure things out on their own," Perry said.

The peculiar funding specifics of the local Washington, D.C. government could also create hurdles for poor taxpayers living in the nation's capital. Local government funds rely on congressional approval, and if they don't get it, many local buildings will be forced to close. DC EITC offers help at 11 locations in the city, including one at the public Martin Luther King, Jr. Memorial Library. Perry estimated that between 400 and 500 people who planned on filing with his organization during the last week before tax day will have to make alternative plans if the library closes for the second week in April.

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