California is expanding the reach of its tax credits, including the creation of a $1,000 benefit for former foster youth, a first in the country.
However, the programs, which are intended to reduce taxes owed to the government and put money in the pockets of those living in poverty, are underutilized, leaving millions of dollars on the table each year.
The state budget signed by Gov. Gavin Newsom last month includes more than $100 million to expand tax credits for low-income Californians, as research has shown that the no-strings-attached benefits are among the best ways to help those in need.
State officials, on the other hand, face a conundrum: not everyone who qualifies is likely to claim the credits, and those who need them the most may not file taxes at all.
This is due, in part, to the fact that low-income California residents are not required to file taxes. A single Californian without dependents must have a gross annual income of $19,310.
“In our country, tax filing is the most effective poverty-reduction tool.” It’s one of the most equitable methods of transferring funds. However, it may not be the most efficient way,” said Anna Johnson, associate director of housing and health at John Burton Advocates for Youth, a nonprofit that serves young adults who are in the foster care system or are homeless.
“We’re really trying to make it a more equitable, responsive structure.” If we don’t provide a significant enough incentive to overcome these barriers, they will continue to obstruct progress.”
Another barrier is cost: tax preparers can charge up to $300, reducing the impact of potential credits.
“That really eats into people’s refunds.” “There isn’t enough support for low- and no-income people to file their taxes,” said Sabrina De Santiago, policy and research director at Golden State Opportunity, an anti-poverty organization that operates CalEITC4me, a tool that helps people determine tax credit eligibility.
Since California began offering programs similar to federal benefits in 2015, advocacy groups have launched information campaigns about tax credits and coordinated free tax preparation and filing centers across the state.
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According to the California Policy Lab, the full universe of people potentially eligible for tax credits who do not claim them is unknown because the state lacks substantial data.
Some of the state’s outreach efforts have been insufficient. Over the course of two years, text messages and letters were sent to over 1 million eligible Californians, urging them to claim the credits, but none of the efforts “had demonstrable impacts” on tax filings or Earned Income Tax Credit claims, according to a 2020 California Policy Lab report.
