VITA sites gear up for a potentially taxing season

Every year in the dead of winter, thousands of Volunteer Income Tax Assistance (VITA) sites spring to life across the country. Working under guidance and requirements from the Internal Revenue Service (IRS), the sites provide free tax-return preparation for low- to moderate-income people.[1] By not charging for their services, VITA sites enable their clients to keep money that would otherwise go to paid tax preparers in the form of fees. And the sites specialize in helping people file for the Earned Income Tax Credit, a refundable credit for low-income workers that can amount to more than $6,100, depending on a filer’s household size.[2]

VITA sites aim to help as many taxpayers as possible over a fairly short span of time—typically, mid- to late January through April 15. That’s a challenge in any given filing season, since most VITA sites are operated by nonprofit organizations or human service agencies with limited resources. But according to a sampling of VITA providers in the Ninth Federal Reserve District, it could be particularly challenging during the 2015 season, due to two factors beyond their control: an increase in demand for free tax preparation, fed in part by service cuts at the IRS; and the rollout of the Affordable Care Act (ACA), which has implications that could complicate and lengthen the filing process.

A growing clientele

Demand for VITA services has been growing for years as a result of word-of-mouth recommendations, modest promotional efforts by the industry, and—more recently—cuts in services at the IRS’s national network of Taxpayer Assistance Centers. As of the 2013 filing season, the cuts forced the centers to stop providing tax preparation assistance and start sending taxpayers to VITA sites for help. The IRS is not sending VITA sites additional financial support to cover the cost of serving more clients, however. An IRS matching-grant program for VITA sites has been funded at just $12 million a year since 2011. That’s “a drop in the bucket compared to the costs of our services,” says Karen Heisler, director of asset development for Rural Dynamics (www.ruraldynamics.org), a Great Falls, Mont.,-based nonprofit organization that directs Tax Help Montana, a coalition of 24 VITA providers across the state. Tax Help Montana provided VITA services to about 4,800 taxpayers during the 2014 filing season and expects a 10 percent increase in demand in 2015.

It’s a similar story in other corners of the Ninth District. Prepare + Prosper (www.prepareandprosper.org), a St. Paul-based nonprofit, has provided VITA services at multiple locations in the Twin Cities area of Minnesota since the 1970s. According to Carla Gainey, the organization’s senior director of tax services, Prepare + Prosper served nearly 13,000 taxpayers last year but had to turn away 900–1,000 more because it didn’t have the capacity to serve them.

In the Upper Peninsula of Michigan, a VITA provider has seen its clientele more than double each year since it opened.

“The IRS cuts have hit our area pretty hard,” says Trent Batchelor, an instructor at Northern Michigan University (NMU) in Marquette, who runs a VITA operation staffed by honor students from his accounting and taxation classes. “We had at least 100 returns last year that in prior years had been done by our local IRS center.” The NMU site filed 90 returns in its first year of operation in 2013 and 265 returns in 2014. Batchelor recently recruited and trained more students in order to serve an anticipated 500 clients this year.

Difficult conversations

Although it’s not expected to increase VITA sites’ client base, the recent ACA rollout will likely add complexity, time, and interpersonal challenges to the mix. Under the ACA, people who don’t receive health insurance through their employer are required to purchase it through a federal or state exchange, unless they qualify for an exemption.[3] If they’re required to purchase insurance but haven’t done so, a penalty called a shared responsibility payment will be deducted from their tax refund. Some VITA providers are concerned that taxpayers won’t necessarily be aware of the penalty, and that site volunteers will bear the brunt of any surprise or displeasure clients express about it.

According to Heisler, “The ACA is going to have a huge impact on the VITA sites this year, because the clients aren’t all going to understand the ins and outs. Somebody might be used to getting a $1,200 refund and we’ll have to tell them their return’s going to be $900. Those will be difficult conversations.”

VITA providers also expect documentation requirements under the ACA to increase the amount of time it takes to complete a return. Clients will have to provide evidence that they qualify for certain exemptions, for example.

“We’ve estimated it’ll take at least 15 minutes longer per return, and that’s 15 minutes of not serving another client,” Gainey points out.

Making it all worthwhile

Despite the expected demand and complexities this filing season, the satisfaction of helping people of modest means keep more of their money continues to be a powerful motivator for VITA providers. According to Jessie Murray, the Tax Help Montana program manager for Rural Dynamics, the statewide VITA coalition enabled its clients to save a total of over $1,000,000 in tax-preparation fees during the 2014 filing season. In Upper Michigan, Batchelor and his NMU students have calculated that between fees avoided and refunds received, they created about $300,000 in disposable income for their clients last year. And Batchelor recalls a memorable moment that illustrates the importance of their work.

“Last year when I was out Christmas shopping, I ran into a schoolteacher whose return we had processed. She asked to shake my hand, and told me, ‘I have a house to live in this year. You made that possible.’ Those are the things that make it all worth it.”