From Idea to Reality: Unlocking Tax Funds and Reducing Poverty for More Families

In early 2020, just days before the stay-at-home measures went into effect in Chicago, I ran into the Director of the Illinois Department of Revenue at a press conference. This sounds like the start of a bad joke, but it was completely serendipitous. I handed him a short paper I’d written a few months before and, over the next two minutes, gave him a run-down of a poverty-fighting initiative the team at New America and our partners had been trying to build support for.

Fast-forward to a year and a half later, we found out the department had taken the idea, forged by our team and many others, and ran a very successful pilot. Two years after our chance meeting, something even more wild happened: Drawing on lessons learned from the pilot, Illinois had sent over $12 million in missed tax refunds out to over 22,000 low- and middle-income Illinoisans, including many struggling to financially recover after months without paychecks. What’s more: Nearly all the refunds went out to individuals or couples earning less than $45,000 per year. For me, my peers, and other advocates working in this space to reduce poverty, it was a dream scenario.

Back in those first few months of 2020, our team had been working with Economic Security for Illinois (ESIL) to share a new concept with Illinois leaders that could dramatically open up access to life-changing cash payments in the form of tax credits for hard-working, low-income Illinois families. While cash refunds from tax credits like the Earned Income Tax Credit have been shown to be transformational for low-income families, over 20 percent of eligible people in Illinois don’t receive them, in some cases because they simply don’t need to file taxes. It’s a problem that nonprofits have tried to crack for decades.

Our core concept was to simplify access to poverty-fighting tax credits by removing much of the unnecessary paperwork and tackling feelings of fear and anxiety around tax filing. At the time only a few states — California and New York — had tested the idea, despite it being common in other countries. The premise? Different state agencies would come together to collaborate on a form of simplified filing to save taxpayers time and energy. The agencies already had access to the core information they needed to make filing for tax refunds simple and painless. Instead of making people who don’t need to file taxes go through the frustrating exercise of tracking down their paperwork and trying to navigate complicated tax forms, the departments could pull together what they already had and prepare it for the taxpayers to approve or correct.

While we’d been able to make a case for this program to the Chicago City Council, we’d only reached a handful of people at the state level where the decision would need to be made. With the stay-at-home order looming, running into the Director came just at the right time.

After that chance meeting, we found ourselves shifting our focus to more urgent work as the COVID-19 pandemic intensified. As weeks wore into months, we moved into triage mode, looking for other ways to help low-income workers stuck at home without paychecks. A year quickly passed and we were neck-deep in an initiative to help struggling Illinoisans get their stimulus checks as we continued to explore the possibility of a technical sprint to help Illinois roll out a simplified tax filing pilot with our colleagues at the New Practice Lab. Sadly, those discussions fizzled due to the pressures of the pandemic on another potential partner agency. When Chicago began to open up again in the summer and autumn of 2021, with our partner organizations ESIL and Heartland Alliance, we reached out again to the group of state agencies we’d tried to engage earlier and found out that the Department of Revenue had already designed a pilot and been testing it out since October 2020. The pilot was so successful, the department had already integrated the approach into their regular work stream. We couldn’t believe it was happening — especially in a state where even very successful pilot programs sometimes die on the vine due to lack of additional funding.

The pilot was particularly successful at reaching one of the groups least likely to claim their tax credit: low-income, single filers. This is important because, as many Americans know, it can be difficult to pay rent and cover basic expenses on just one income, especially for service workers and others in low-wage work. In the two pilot years, over 80 percent of dollars went to single filers earning less than $29,194 a year. In short, most of the pilot money went directly to those people who needed it most, during perhaps the most difficult year of their lives.

This story is one of success — and it’s also one of hope for what’s to come. There is great potential for the impact of this program to reach beyond Illinois. Over the next few months, the federal government will be using lessons from federal efforts to open up tax refunds to very low-income non-filers through the IRS’ non-filer tool and GetCTC.org, to explore a more permanent free filing option for low-income communities. Last month, Illinois also sent out the first of small tax credits to families and will be phasing in an increase in the state’s Earned Income Credit over the next few years. There are key steps both Illinois and the federal government can take to make sure families who are struggling most are able to access their tax credits.

To ensure that all hardworking individuals and families benefit from the needed cash these tax credits offer, there are big barriers to overcome to reach non-filers, especially those with limited or no internet, housing insecurity, or low literacy levels. Luckily, there are solutions. By improving cross-agency collaboration to match existing records, tax refunds for those who need them most are within reach.

Learn more about Illinois’s simplified filing pilot and recommendations for increasing access to the Earned Income Tax Credit and Child Tax Credit.

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