$30 million in tax refunds go unclaimed
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By Greg Wiles
Advertiser Staff Writer
By Greg Wiles
An estimated $30 million in federal tax refunds are going uncollected by some of Hawai'i's poorest residents, prompting agencies to promote and offer more free help filing for tax credits.
The Aloha United Way is coordinating an effort this year and next to reach immigrants and others who might not be aware of the federal Earned Income Tax Credit and other credits. A family of four could be eligible for a refund of up to $4,400 under the earned income credit.
The refunds can provide a big boost to low-income workers. Lehua Rosa Malott, 45, a former drug addict, was able to pay off more than $11,700 in debts and qualify for a program that allowed her to buy a home in Makaha by applying for the credits.
"We were able to use that and it was just a blessing," Rosa Malott said. "When you're poor, having a couple thousand dollars is a big deal."
Hawai'i taxpayers received an average refund of $1,575 for the earned income credit in 2002, the last year for which figures were available. But only 72 percent of local residents eligible for the credit filed for it, compared with 75 percent nationally.
That meant 19,000 people didn't get refunds they might have received, said Norm Baker, an Aloha United Way vice president.
"Even if they owe no income taxes, they can file for it," Baker said, noting people can file for it retroactively even if they missed three years. "We think there's a portion of the community that just doesn't understand it."
The credit was enacted in 1975 as a way to allay Social Security tax burdens for low- and moderate-income wage earners. The amount of the credit depends on a taxpayer's income and if they have children. Last year about $39 billion of credits were claimed nationally.
About two-thirds of those who claim the credit use paid tax preparers, according to an Internal Revenue Service report. Those who do their own taxes have to wade through five pages of instructions and a table to fill out a worksheet and one-page form, said Wayne Tanna, a Chaminade University professor of accounting who is part of the Aloha United Way effort.
"It's so daunting sometimes that they don't want to do it," Tanna said. He said other people who fail to claim it may include immigrants who don't understand the process or people who think they don't qualify.
Rosa Malott, a former accounting student at the University of Hawai'i, was making $17,000 a year when she learned of the earned income credit and began applying for it.
Now a counselor at the Hawai'i HomeOwnership Center, Rosa Malott used the first year's refund to pay off $1,700 she owed her bank and also settled some smaller debts and bought clothes.
In 1999 she used the refund to negotiate lump-sum payments with collection agencies for $10,000 she owed credit-card companies.
In the third year, Rosa Malott paid off her remaining debts and had enough to qualify for a program that helped her buy a small home. That led to her moving out from public housing at Kuhio Park Terrace where she lived with her three small children.
"I'd probably still be trying to pay those debts off if not for that," Rosa Malott said.
Aloha United Way got a $100,000 grant from the state to coordinate efforts over two years to help people get tax credits they are owed. Aloha United Way is working with government agencies and nonprofits such as Goodwill Industries of Hawaii to publicize the credit and operate sites where people can get help filling out forms.
The group also is publishing fliers in Samoan, Chuukese and Ilocano urging people to claim the credit as well as operating a Web site (www.hawaiitaxhelp .org) and providing information by telephone. Plans call for fliers in four other languages.
In doing so, the groups hope to help 600 people claim the credit, or about three times as many as they helped last year. The goal is to obtain $750,000 of refunds for people they help this year, said Aloha United Way's Baker.
That level of refunds should produce tax revenue to state government that's greater than the $100,000 state grant as recipients spend the money and it works its way through the economy, said Lt. Gov. James "Duke" Aiona.
"It's a win-win situation for everyone," Aiona said. "We want to let them know there are tax credits."
Reach Greg Wiles at firstname.lastname@example.org.