New Report Offers Insights into Barriers Families Face in Accessing Tax Credits

Every year, millions of dollars in tax credits are left on the table by families who fail to access them — missing out on one of the most effective anti-poverty tools in the US.

The New Practice Lab at New America has sought to answer the question: with potentially thousands of dollars per family available through programs like the Child Tax Credit and the Earned Income Tax Credit, why are so many low income families missing out on this critical cash?

In a just-released report, the New Practice Lab shares the results of a first-of-its-kind national survey of more than 5,000 respondents to understand why so many low-income households struggle to claim tax credits and receive the support they’re owed.

The report reframes tax credit access as a service delivery challenge, exploring how people understand, approach, and experience the tax credit system, and the broader tax filing process it’s embedded within.

Informed by both the quantitative survey results as well as a qualitative study done with 25 residents in Illinois, the report shares six reasons why tax credits often fail to reach the people who need them, along with actions governments—particularly state Departments of Revenue (DORs)—can take to address some of these barriers.

“Accessing tax credits is often overwhelming and costly, creating unnecessary barriers for the families who need this support the most,” said Devyani Singh, lead author of the report. “Tax credits can be a critical lifeline for families that are struggling financially, and it’s up to state Departments of Revenue to look at the process as a delivery issue. There’s no one-size-fits-all solution to increasing tax credit uptake; improving access requires a multi-pronged strategy combining personalized outreach, streamlined systems, and policies that meet families where they are.”

Some highlights from the report:

• Awareness gaps were a major barrier to tax credit access for the families who need them most. Among households earning under $10,000 annually, 36% were unaware of any tax credits, more than double the rate among households earning over $150,000 (17%).
  
• Misunderstanding eligibility also kept many from filing. One-third of lower-income households earning under $26,000 who hadn’t filed taxes in the past three years said they didn’t file because they believed their income was too low. Yet within this group, 20% had earned income and 37% had children—factors that likely would have made them eligible for tax credits, had they filed.
  
• Fear of making a mistake and being penalized for it was the most common barrier to filing, especially among lower-income households. This fear had real consequences: 61% of respondents who felt this way hadn’t filed taxes in the past three years, and even when they did file, they were more likely to miss out on tax credits.
  
• Filing can be costly for families, forcing them to forgo other expenses in order to file. Despite 36% of survey respondents identifying cost as a barrier, most had used professional tax help at some point due to concerns around navigating the process alone.
  
• Accessing the right documents presents a challenge. Half of respondents said they had trouble gathering the documents needed to file. 80% of those who faced documentation issues struggled with more than one type of document.
  
• Most low-income households are already connected with other government support services, but tax credits feel separate and disconnected. 84% of households who had not filed taxes at all or irregularly in the past three years had participated in at least one other public support service during that time period.

These factors are important for government agencies to consider, especially as the White House and voices on Capitol Hill express interest in increasing the amount families can get from the Child Tax Credit. The proposed shuttering of effective, free-to-use programs like Direct File will only make it harder for families to access these benefits.