Tax season approaches: Cue dread, confusion and mentally preparing to part with a chunk of your money.

At least, that’s how many people think of taxes.

But in recent years, especially after payments related to the pandemic and rising gas prices in California, submitting a tax return has also become key to receiving money.

Adam Kuhn learned this the hard way. His wife, who is a contractor, lost all of her work early in the pandemic. She received some unemployment benefits, but even with Adam’s work as a software trainer, the couple’s earnings in 2020 were low enough that they didn’t owe taxes. “So why would we bother?” Kuhn, a Sacramento resident, said. They didn’t bother.[pullquote size="medium" align="right" citation="Elizabeth Linos, public policy professor, Harvard University"]'What we're seeing is that people will be missing out on benefits if they're not filing their taxes.'[/pullquote]

Then, in 2021, California started sending out its own pandemic stimulus payments, which reached up to $1,200. To get the payments, you had to have filed a 2020 tax return. The state did a second round of payments in late 2021, also predicated on having filed a 2020 return.

In 2022, with gas prices soaring and a massive budget surplus on their hands, state lawmakers decided to send out another round of payments to help with the rising cost of living — again tied to 2020 tax returns.

“I wish I had filed taxes especially because, you know, it’s not that much trouble to file taxes, and especially when you don’t owe anything,” said Kuhn. “We do OK for two people with no kids, but we certainly don’t make a ton of money.” They were late on their rent several times in 2020, but luckily their landlord was “gracious” about it, Kuhn said. If they had received some of those payments, they said, the couple probably would have spent the money on food.

It’s a recurring problem. One of the main ways California helps people financially — and redistributes wealth — is by passing money through the tax system. It’s not just one-time pandemic payments; there are also yearly payments, called refundable tax credits, that provide thousands of dollars to lower-income people through the tax system.

But some of the people eligible for those programs earn little enough that they don’t owe any taxes. So, many don’t file a tax return. And if they don’t file, they can’t collect what is essentially free money on the table.

“Your best bet is to file your taxes, because there may be things like stimulus payments or the [gas payments] that we can’t anticipate,” said Anna Hasselblad, director of public policy at United Ways of California, a network for dozens of organizations across the state which, among other things, provide free tax prep.

That’s especially true for any Californian earning less than $30,000, Hasselblad said, because they are likely eligible for cash back, in the form of a tax credit.

The official line, from the state’s Franchise Tax Board, is essentially the same: Filing your taxes, even if you don’t owe any, can be beneficial, because it allows you to potentially get tax refunds, payments via tax credits if you qualify, and potential future one-time payments like the pandemic stimulus packages. You can file a state tax return even if you have no income from work — this includes seniors living off of Social Security — wrote tax board spokesperson Andrew LePage in an email.

One caveat: High fees charged by paid tax preparers might make the trade-off of filing taxes if you don’t owe any not worth it. But many people qualify for free, individualized tax prep through an IRS program — more on that later.

Kim Kaufman, a retiree in Los Angeles, hasn’t paid California taxes for several years; she paid off her house a handful of years ago, she said, and the state doesn’t tax the Social Security checks she receives.

When she heard about the gas payments and learned they were based on 2020 tax returns, “I thought ‘Well, s---. I could’ve used that money,’” Kaufman said. It would have chipped away at her property tax and home insurance bills.

She plans to file a return this year, “in case something like this comes up again,” she said.

“I’ll do it early. I’m not gonna wait until, you know, April.”

More and more aid programs are being delivered as tax-based benefits, said Elizabeth Linos, public policy professor at Harvard who has studied how people interact with the tax system. “What we’re seeing is that people will be missing out on benefits if they’re not filing their taxes.”

'It's your money, go get it'

California’s biggest cash back credit for lower-wage people is CalEITC, or the state’s earned income tax credit. That credit alone can give tax filers as much as $3,417 cash back, and combined with the federal credit, the sum can grow larger. There’s also federal cash-back credit for people with kids under 17, and another California credit for families with kids under 6.

So, for example, if you’re a single parent in California making $25,000 with two kids under 6, you could receive $9,990 when you file your taxes in 2023, according to figures provided by the California Budget and Policy Center.

“We like to say, ‘It’s your money, go get it,’” said Hasselblad, with United Ways of California. “And going and getting it means also: Ask for help if you need it.”

Despite all the money on the table, lots of people don’t file their taxes and miss out. It’s difficult to know exactly how many people are in this group. Nationally, about one-fifth of the people who are eligible for the federal earned income tax credit don’t receive it (PDF), according to the U.S. Department of Health and Human Services. When researchers looked at California households who receive food assistance and are eligible for CalEITC, they found that about 400,000 households that qualified for credit didn’t receive it (PDF), largely due to lower-income families not filing taxes.

It’s hard to convince people they should file a tax return even if they know they could get cash back. In 2020, Berkeley researchers partnered with California state agencies to research whether small “nudges” — including sending text messages and letters with information about the tax credits to 1 million people — aimed at people who were probably eligible, but who might not claim the benefit, would increase filing. The nudges had no effect.

Another approach was slightly more successful. Researchers reached out to households with emails and voice messages explaining they could receive stimulus payments and directing them to a simplified filing tool designed by Code for America, but the largest boost was only from 0.43% to 2.4%.

California saw an uptick in lower-income tax returns in 2020, which the state’s Franchise Tax Board attributed to pandemic-related factors. In 2021 the number of tax returns from people or households making less than $30,000 went down again.

Trying to make it easy to file

This summer the state Franchise Tax Board plans to send letters to two groups of Californians.

For people who filed a timely 2022 return and appear to qualify for CalEITC but didn’t claim the credit, the tax board will make them aware of the credit and allow them to fill out just one form to receive it. For people who worked and have filed taxes recently but missed 2021, they will potentially receive a letter explaining how much money they might qualify for, as well as how to receive free help filing a return.

Illinois has run a promising pilot with another approach: sending people forms that are already filled out. The state sent tens of thousands of letters to people who had filed a federal tax return and claimed the federal earned income tax credit, but who hadn’t filed an Illinois state tax return. Those people received letters explaining that they might be eligible for an Illinois tax credit, as well as a form with their tax information already filled out, which they could review for accuracy. Recipients could simply sign the letter and mail it back, or take a photo of their signed letter and email it to the Illinois Department of Revenue. Almost half responded and got refunds in the first year of the pilot.

“I don’t understand why — if the IRS and the California tax board, kind of broadly knows how much I owe in the first place, or if I owe anything at all — why they don’t just send me a letter?” Kuhn, the Sacramento resident, said. “Why have to go through Intuit, or, you know, Turbo Tax or whatever?”

Getting free tax help

One big reason people don’t file tax returns is that taxes are hard.

“It’s entirely too complicated, it’s entirely too difficult, and there’s a lot of fear around, you know, getting it wrong,” said Teri Olle, California campaign director for Economic Security Project Action, an advocacy organization. “We, as a country and as a state, do not make it automatic in the way that a lot of other countries do,” she said.

But there is a network of over 100 sites across California that offer free tax prep. The help is provided by trained volunteers and the program is funded in part by the IRS. It’s generally for people making $60,000 or less, people with limited English, and folks with disabilities; California has a lookup tool for finding a site near you, and many sites offer multiple languages.

Anna Perez manages United Way of Kern County’s free tax prep program, which typically operates at 10 sites across the county during tax season. People who visit a site, Perez says, will generally get checked in, chat with a volunteer who will ask them questions about their situation and collect their paperwork, and then that information will get passed on to another volunteer who is certified to prepare their tax return. Then the return will get double-checked by yet another volunteer, reviewed by the client who came in, and then a return will get filed — all for free. The whole process typically takes 45 minutes to an hour, Perez says.

There are also locations that provide free tax help specifically for people over 60. And if you want to file yourself, the Franchise Tax Board recommends some free online tools.

“The bottom line is, a lot of Californians qualify for tax credits,” said Hasselblad, “and none of them should have to pay a tax preparer to get those credits.”

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