United Way assisted Multi-County Community Service Agency in initiating a tax preparation service that assists families in filing for Earned Income Tax Credits (EITC).

The EITC is the largest and most effective federal aid program for low-income working families. Enacted be Congress in 1975, the tax credit was created to reduce the tax burden on lower-income families, supplement their wages, and encourage greater participation in the workforce. Since its inception, the EITC has encouraged hundreds of thousands of welfare recipients to enter the workforce; it continues to lift more families out of poverty than any other federal program; and it provides families with additional income they can direct toward savings, education and debt reduction. Each year, the EITC raises the income of almost five million people above the poverty line, half of whom are children. According to the IRS, during the 2004 tax season, approximately 21.1 million people received $39 billion in refunds by claiming the credit.

The EITC's effectiveness lies in its design. Eligibility for the credit is based on three criteria: income level, marital status, and number of dependent children. As an individual's earned income rises, the amount of EITC they are eligible for also rises, providing an incentive to obtain and maintain employment. As the individual's income approaches 200 percent of the poverty level, the amount of the credit plateaus and then gradually decreases to zero.

The refundability of the credit also helps families to increase their income. Eligible individuals receive the full amount of the credit, regardless of their tax liability. The amount by which the credit exceeds the taxes that are owed is paid to the individual as a refund. If the individual has no tax liability, they receive the entire credit amount as a refund.

Although the EITC has proven effective in helping families achieve self-sufficiency, a significant number of taxpayers do not take full advantage of the credit. Annually, more than 4 million eligible taxpayers fail to file for the credit, forfeiting more than $2.9 billion in additional income. Moreover, many taxpayers who do file for the EITC often forfeit a substantial portion to commercial tax preparation services and refund anticipation loans that offer immediate tax refunds at substantial interest rates, ranging from 67 to 774 percent.

Recognizing the EITC's potential economic impact, community organizations nationwide are forming collaborative to educate families about the availability and benefits of the EITC and to provide support services, such as free or low-cost tax preparation, to facilitate receipt of the credit. EITC campaigns, as that are commonly called, are making wide-sweeping inroads in addressing the tax assistance needs of low-income families across the country.