EITC and tax refunds as life changers -- credit where it's due

The Tax Policy Center's new database is a great tool.

In an informative post on the Tax Policy Center’s TaxVox blog, Richard C. Auxier touts the benefits of the Earned Income Tax Credit. Auxier praises the EITC while introducing the TPC’s new database “that makes it easy to access information about the EITC and to tailor that data for specific geographic and political communities.

It’s great to see facts and data being compiled about programs like the EITC. Also encouraging is thisarticle from The Economist highlighting the EITC’s bipartisan appeal and its cost effectiveness to taxpayers. Studies such as thisone from economist Jacob Bastian, on which The Economist based its article, lay the EITC’s effectiveness out in black and white.

"Both and" -- Financial Coach Adam Taylor, left, helped Leslie Brady
strategically utilize her Earned Income Tax Credit.

At Appalachian Community Federal Credit Union (ACFCU) and its Volunteer Income Tax Assistance (VITA) partner Tusculum University, we see those good effects firsthand. This is particularly true in the lives of people who have combined our tax prep with financial coaching – people like Leslie Brady, whose story is below.

Another important ACFCU partner, Family Promise of Greater Johnson City (FPJC), introduced us to Leslie in late October 2017. Leslie was late on her rent. ACFCU had established an innovative secured loan program with FPJC, and Leslie got a low-rate personal loan secured by FPJC. The loan was contingent on Leslie working with our financial coaching department to help insure a sustainable path forward, and she began meeting with Financial Coaching Specialist Adam Taylor.

VITA volunteers from Tusculum University help a client in 2018.

Leslie got current with her rent, but an array of additional financial hurdles remained. She had a $9,000 balance with a predatory “buy here pay here” car lot on a car worth less than $5,000, and two predatory loans with a total balance above $900. Those three loans together were costing her $492 a month. Leslie also had a bit of old debt. Enter VITA and the EITC.

Adam directed Leslie to ACFCU’s VITA program, which completed 736 returns last year. The year before, Leslie had paid $300 for tax prep in 2017. This time she saved that money, and an EITC of nearly $3,500 contributed to a refund of nearly $7,000.

Leslie let the buy here pay here car go and took Uber to work and back during a two-month car buying process. She got a secured ACFCU VISA credit card to help her build her credit score. She paid off old debt, put some money in a sinking fund, and held the rest for a vehicle down payment.

Leslie consulted Adam heavily during the car-buying process. He built a spreadsheet with a dozen prospective purchases. James Reeves, a mechanic with whom ACFCU has a relationship, vetted those prospects. Leslie found a good vehicle for her with a $181 monthly payment.

Leslie hasn’t been late on any debts in 2018 and her credit score has increased from 561 to 631. She got a raise at work and is working an extra job through the holidays with her eyes on the American Dream. She’ll use VITA for taxes again in February 2019 and at that point she’ll have begun the journey toward homeownership in earnest. She’ll be able to pay off her FPJC loan and a personal loan at a separate credit union, as well as a short-term ACFCU “quick cash” loan that the credit union offers as an alternative to short-term predatory loans.

Leslie plans to use that extra cash flow (more than $300 a month) to prepare for homeownership. By Christmas 2019, the ACFCU team is hopeful that Leslie and her kids will be living in their own home. Leslie’s financial goals have changed from being reactive (avoid homelessness) to being proactive through her relationship with ACFCU. The Earned Income Tax Credit has played a key role in this progress.

(Jeff Keeling is director of community relations for Appalachian Community Federal Credit Union.