Effects of Government-Supported Free Tax Assistance on Low-Income Households: Evidence from the Volunteer Income Tax Assistance (VITA) Program

• In Event: Family Support in the Tax Code

Abstract

Tax filing among low-income households is critical for tax compliance and access to poverty-reduction programs like the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC), which improve health, education, and economic stability. However, low-income individuals face barriers, including no mandatory filing requirement, high preparation costs, and tax complexity. Can government programs simplify filing and enhance access for low-income households? This proposed study evaluates the effectiveness of the Volunteer Income Tax Assistance (VITA) program, offering free tax preparation to low- to moderate-income taxpayers. Using administrative data obtained via FOIA requests—detailing VITA site locations, non-profit grant amounts, and funding eligibility score cutoffs (determined by IRS evaluations of non-profits)—and location-level tax filer data from the IRS Statistics of Income program, I will employ two identification strategies: (1) a difference-in-differences approach, leveraging geographic variation in VITA site presence, and (2) a regression discontinuity design, based on IRS funding score thresholds for non-profits. These methods will estimate VITA’s impact on the percentage of low-income individuals filing taxes in a county and claiming refundable credits like EITC and CTC. Additionally, a cost-benefit analysis will assess the marginal value of public funds. The findings will shed light on VITA’s role in reducing tax compliance barriers and enhancing credit uptake. This study will contribute to the literature on tax policy interventions, offering insights for poverty alleviation and public policy design.

Author

• Sakshi Bhardwaj, University of Wisconsin-Whitewater