In the past, I’ve written Tax Day articles for OK Policy about a world without taxes. This year I’m celebrating Tax Day by describing my work helping dozens of Oklahomans file their federal and state income taxes through the VITA (Voluntary Income Tax Assistance) program. During my volunteer work here, I’ve seen first-hand the essential role that refundable tax credits play in the well-being of low-income Americans of all ages and the need for a more nuanced approach to tax policy for senior citizens.
VITA helps Oklahomans navigate Tax Day
VITA is a national program created by the Internal Revenue Service (IRS) to provide free tax assistance for those who need it, particularly low-income, disabled, and limited-English speaking taxpayers. The VITA program helps taxpayers get all the credits and deductions for which they qualify and save them the hundreds of dollars that for-profit preparers charge for even a simple return. VITA also helps Oklahoma by providing more accurate and complete state income tax returns and securing more federal tax credits that eligible taxpayers will spend in our local economy.
The IRS oversees the VITA program, but it is operated by local sponsors. These sponsors provide facilities, equipment, and supplies, but local programs rely mainly on volunteers. There are nine VITA programs in the Oklahoma City area alone, and interested taxpayers can find VITA sites anywhere with the IRS VITA locator. Those interested in volunteering, whether in a support role or working on taxes, can do so by signing up with the IRS. The IRS will identify local sites, any of which a volunteer can contact. The sites provide orientation and training for volunteers. Volunteers can help prepare returns only after they have completed extensive training and been certified to prepare returns.
VITA sites start preparing returns in early February. The volunteer preparer interviews each taxpayer, reviews all tax documents, and then enters all relevant data into the tax preparation software. Each return is reviewed by another preparer to verify its accuracy, and the original preparer reviews the return with the taxpayer, as well as how refunds or additional payments are handled. Just about every taxpayer I helped mentioned feeling relief from simplifying the tax process, being confident in their return, and reducing the fear of future issues with the IRS.
The observations and arguments below are based on a review of about 60 returns I prepared during February and March. These returns may not be representative of Oklahoma taxpayers as a whole since VITA taxpayers tend to be older and lower-income than Oklahomans in general. The site where I worked also had many military and other public service employees and retirees.
Refundable tax credits are essential to many Oklahoma families
Refundable tax credits use the federal and state income tax codes to provide financial assistance to low- and moderate-income families. A credit is refundable if the amount of the credit exceeds the tax due. The three major refundable tax credits for individuals are the state and federal Earned Income Tax Credit (EITC), state and federal Child Tax Credit (CTC), and the state Sales Tax Relief Credit (STRC).
I learned quite a bit about the impact of these credits from the families I helped with taxes. More than 1 in 3 of the working taxpayers I helped received the federal and state EITC. These families’ experiences provided important insights into the EITC.
- Most EITC filers weren’t the traditional nuclear family with two parents and two or more kids. For example, there were two single women who were raising grandchildren or nieces and nephews. Both had good jobs that paid around $40,000. That’s a good living for a single person, but it’s barely half of the Oklahoma County living wage for a household of three people. The EITC and the expanded Child Tax Credit narrowed the gap and increased the chances these children would be well cared for, have sufficient food, housing, and clothing, and not be at risk of entering foster care.
- Nearly half of the EITC filers were over 65. Seniors were eligible only for 2021 as part of the American Rescue Plan Act. The federal and state EITC amounted to an average eight percent pay raise for these working seniors.
More than a third of the families I worked with qualified for the STRC. This year, the Legislature is considering an increase in the $40 per person credit for the first time since it was created three decades ago.
We need to have a more nuanced discussion about tax breaks for senior citizens
Federal, state, and local governments have created many new programs and tax breaks for those over 65. These programs responded to a dramatic increase in poverty among those over 65 during the 20th century. More than one-third of seniors were poor in 1960. Things have changed dramatically since then, however. Seniors are now less likely to be poor than other adults and much less likely to be poor than children.
Favorable federal and state tax treatment of seniors has improved after-tax income for nearly every senior in the country. However, these tax breaks should be re-examined since the high-poverty world for which they were created doesn’t exist anymore. To be sure, many seniors struggle, but I helped more seniors with income more than four times the poverty level than I did seniors who were below poverty.
Taxes for seniors should be like taxes for every other family or business: based on ability to pay. The federal government exempts Social Security income for those with less than $25,000 total income (or $32,000 for married filing jointly) and phases in taxation for those with higher incomes. Most non-Social Security income is taxed just as it is for other adults.
Oklahoma can raise revenue for essential public services by taxing high-income seniors. One option is to tax Social Security the way the federal government does, which would have affected half of the retirees I helped. Those affected would have an average income of $55,000 and would pay another $425 in state taxes on average. Treating Social Security the same as Kansas and Missouri would affect fewer than one-tenth of seniors, all of whom make more than $75,000. They would pay an average of $1,100 in additional state taxes. (Note: the author would pay about $3,000 more in state taxes under either of these options).
Increasing taxes on high-income seniors is not just fair: it’s what’s best for all seniors. Seniors are as dependent as any Oklahomans on the public services that our taxes fund. We need police, fire, and emergency medical services. We need good, safe roads, abundant and accessible sidewalks, and above all a much better public transportation system than any that currently exist in Oklahoma. Many need or will need Medicaid to help pay for nursing homes or in-home care without being a burden on our children.
Modernizing state tax policy can help all Oklahomans
VITA helps millions of taxpayers navigate our complicated tax system with confidence, and it helps them get the refundable tax credits they need to support themselves and their families. My VITA experience also shows that the federal and state governments need to better target and increase the value of refundable tax credits. It also showed that Oklahoma needs to better target tax breaks for seniors to recognize that many can afford to contribute more to the public services on which they — along with every other Oklahoma resident, visitor, and business — depend.