Expanding the VITA Scope

Transcription

SETI
Expanding the VITA Scope
Tax Year 2010 Schedule C VITA Pilot
In 2010, CFED’s Self-Employment Tax Initiative (SETI), the
National Community Tax Coalition (NCTC) and the IRS
Stakeholder Partnerships, Education and Communication (IRSSPEC) teams partnered to develop a pilot initiative testing the
efficacy of expanding the parameters of Volunteer Income Tax
Assistance (VITA) programs to include broader Schedule C
preparation. SETI, NCTC and IRS-SPEC determined a set of
expanded Schedule C parameters for implementation of the
pilot, selected 12 VITA programs with experience preparing
Schedule C returns and worked with those sites to develop
training materials, certification tests and other tools for the pilot’s
implementation. During the 2011 tax season, the Schedule C Pilot
local partners – a group of 12 community-based tax assistance
providers – delivered free tax assistance to low-income selfemployed filers, in addition to their wage-earning clients. They
collected data throughout the process in order to demonstrate
the feasibility of bringing robust Schedule C parameters into
scope for all VITA programs. This report documents the results
of this Tax Year 2010 Schedule C VITA Pilot.
“The Schedule C pilot has
allowed us (tax assistance
practitioners) to reach a wider
pool of potential VITA clients. Not
only can we assist small business
owners who need to file taxes in
order to grow their businesses, we
can also reach many people who
otherwise would not be able to
file taxes at all.”
– Leonardo Covis, EBALDC
Background
VITA is an IRS-sponsored, community-based program designed to help low- and moderate-income taxpayers
complete their annual tax returns at no cost. Each year, thousands of volunteers are trained and certified to prepare
income tax returns, and in 2011, VITA volunteers prepared over three million income tax returns at more than 12,000
VITA sites across the country. The VITA program features a defined scope of services for which volunteers can
become certified in order to guarantee the quality of returns filed and to ensure that volunteers, time and resources
are maximized to help low-income families comply with their tax liabilities and access the tax credits for which they
are eligible. Complex tax issues, many of which arise with Schedule C filing, are typically disallowed from VITA
scope to ensure that quality tax assistance can be delivered in the greatest volume possible. Filers that earn selfemployment income, under certain very limited parameters, can receive tax assistance at VITA sites with qualified
volunteers. Still, VITA scope prevents many more Schedule C filers – those who earned self-employment income by
operating a small business – from receiving assistance at VITA sites.
Prior to 2011, IRS-SPEC deemed Schedule C preparation “out of scope” for all VITA programs. The pilot gave the 12
VITA programs that participated license to expand their services to handle Schedule C preparation during the 2011
tax season. Prior to this year, however, some VITA programs with the capacity to provide additional resources and
more thoroughly trained volunteers have offered tax assistance to self-employed filers with more complex returns
1200 G Street n Suite 400 n Washington, DC 20005 n 202.408.9788 n www.cfed.org
that may fall outside the typical VITA scope. For many former SETI grantees, this has been the case for years; they
recognized a need in their communities, acquired qualified volunteers and developed the resources necessary to
serve small business owners in spite of VITA scope restrictions. For years, these programs have been operating in
stealth to serve a clientele in need of assistance. This year, the Schedule C VITA Pilot allowed a group of 12 VITA
programs to operate under an expanded set of parameters to serve more self-employed filers with IRS approval.
The Partners
In 2010, SETI, NCTC and IRS-SPEC partnered to develop the framework and parameters for this pilot. In late
2010, CFED and NCTC identified a group of community-based VITA programs with deep experience in serving
self-employed filers. From that group of local partners, NCTC convened a small group to work with the IRS
to develop a Schedule C certification test and retest. At the same time, SETI adapted its existing data collection
tool – a final reporting survey used for SETI grantees in the past – for use with the local partners participating in
this pilot. SETI, NCTC and the local partners participated in monthly conference calls to discuss planning, pilot
parameters, data collection, testing requirements, training techniques and a range of other topics. The local partners
also shared Schedule C training materials, intake tools, assessment and quality review forms, tax filer organizers
and other materials throughout the planning period. Those materials were collected and will be catalogued on the
SETI Resource Bank website, an online compendium of strategies and tools for leveraging tax time to empower
entrepreneurs.
SETI works to ease the tax challenges faced by low- and moderate-income business owners who are pursuing
economic success through entrepreneurship. For five years, SETI has partnered with local nonprofit tax preparation
services that have prepared business tax returns for over 30,000 low-income business startups. SETI focuses on the
annual tax preparation process as the primary outreach mechanism for educating self-employed business owners
and connecting them to other products and services that will help them grow their businesses, incomes and wealth.
Nearly all small businesses must pay business taxes in the very first year of operation. This encounter with tax
preparation can be both intimidating and, consequently, a powerful teachable moment for business startups. While
calculating business taxes is a critical learning experience for every business owner, the SETI strategy goes beyond
this exercise alone.
Sometimes called “tax prep plus” or “wrap-around products and services,” SETI local partners offer services that
address the tax prep process directly, but that also indirectly offer a lasting benefit to the business. These services
vary from partner to partner but often include basic business record-keeping, pre- and post-tax season trainings,
budget estimation and preparing estimated taxes for the upcoming year, business credit planning and more.
NCTC is the nation’s largest, most comprehensive membership coalition for community-based organizations
offering free tax and financial services to low-income working families. A division of the Chicago-based Center for
Economic Progress, NCTC is dedicated to strengthening economies, building communities and improving lives
through tax assistance and asset-building activities that produce financial security, protect families and promote
economic justice. NCTC serves as the go-to place for training and program resources, networking opportunities and
advocacy tools for our 1900+ members.
Everything NCTC does is focused on one goal: to secure greater financial stability and economic opportunity for
hardworking, low-income families.
IRS-SPEC is the outreach and education function of Internal Revenue Service’s Wage and Investment Division.
SPEC’s mission is to assist taxpayers in satisfying their tax responsibilities by building and maintaining partnerships
with key stakeholders who also seek to create and share value by informing, educating and communicating with
their shared customers. SPEC achieves its mission by combining resources and goals with other organizations for
better access to lower-income populations in local communities. It places an emphasis on partner involvement and
introduces relationship management as a key element in its operations.
— Page 2 —
Expanding the VITA Scope: Tax Year 2010 Schedule C VITA Pilot
SPEC uses a three-pronged approach to serving the wage and investment taxpayer: tax awareness and education,
tax preparation, and financial Education and Asset Building. In conjunction with partnering organizations, SPEC
sponsors several programs designed to reach taxpayers, including VITA; promotes tax education efforts; and
encourages financial responsibility and asset building.
The Schedule C VITA Pilot Local Partners are 12 organizations operating VITA sites with deep experience in
serving self-employed filers. In late 2010, NCTC and CFED convened a taskforce featuring representatives from
each of the 12 pilot sites that worked together to design the pilot parameters and volunteer certification test. Each
of the programs participating demonstrated a commitment to low-income self-employed clients, asset building and
quality tax assistance. All of the local partners either participated in the SETI Demonstration between the 2005 and
2009 tax years or were NCTC affiliates.
Table 1: Schedule C VITA Pilot Local Partners & Number of Sites Reporting Data
Schedule C VITA Pilot Local Partners
Location
Number of Sites Reporting
Jacksonville, FL
4
El Paso, TX
1
Oakland, CA
2
Rural Dynamics, Inc.
Great Falls, MT
12
Just Harvest Education Fund*
Pittsburgh, PA
1
Foundation Communities
Austin, TX
7
KC CASH Coalition, Inc.*
Kansas City, MO
3
Real $ense Prosperity Campaign
El Paso Affordable Housing*
East Bay Asian Local Development Corporation*
Accounting Aid Society
Detroit, MI
5
Center for Economic Progress*
Chicago, IL
2
AccountAbility Minnesota
St. Paul, MN
12
St. Mary's University*
San Antonio, TX
1
Campaign for Working Families*
Philadelphia, PA
3
*Those organizations marked with an asterisk above reported data for the 1-3 VITA sites preparing Schedule Cs that were approved and received
oversight by the IRS. Those not marked by an asterisk provided data for all the VITA sites they operated where Schedule Cs were prepared.
Pilot Design
The 12 local partners delivered Schedule C tax assistance to income-eligible taxpayers with self-employment income
during the 2011 tax season. Only self-employed filers that fell within the guidelines below were eligible to receive
assistance at Schedule C VITA Pilot sites:
n Business expenses up to $25,000
n Business losses confined to a single tax year and with no carry back or carry forward
n Business use of the home was limited to childcare providers that either rent or own their homes
n Section 179 depreciation only so long as total business expenses did not exceed $25,000
n No businesses with inventory
n No Net Operating Losses (NOLs)
n Only cash basis taxpayers
n No businesses with employees
Each local partner agreed to secure experienced paid staff or volunteers to prepare Schedule C returns and all
preparers were required to participate in Schedule C Training, pass the VITA Certification Test at the Intermediate
Level and pass the Schedule C certification test designed by the team of local partners and approved by the IRS.
Three of the local partners utilized all volunteer preparers, while the rest split the workload between volunteers
— Page 3 —
and paid staff (See Table 5 in the Appendix). On average, 65% of the tax preparers providing self-employed tax
assistance for the Schedule C VITA pilot were volunteers and 35% were paid staff.
Tax Preparers: Percentage Volunteers & Paid Staff
100%
80%
60%
40%
Paid Staff
W
F
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KC
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Volunteers
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M
20%
In addition to providing tax assistance to self-employed filers, the pilot sites agreed to participate in IRS research,
through visits where their trainings and tax preparation services would be observed. They also collected tax-related,
demographic and organizational data as well as anecdotal accounts of taxpayers’ experiences. Many of these
programs operate numerous VITA sites, but only up to three sites per organization – a total of 24 sites – were subject
to IRS oversight through visits to observe Schedule C volunteer trainings and to review Schedule C tax preparation
during the season.1 Members of the IRS-SPEC team, comprised of SPEC headquarters and field employees, observed
nine training classes, including one web-based curriculum. They visited at least one VITA site per organization, for a
total of 15 visits, and conducted 19 Schedule C Return reviews. Only one of the nineteen returns was inaccurate, and
the sites received a 94.7% accuracy rate overall.
Compared to a Form 1040, preparers required an additional 15 minutes on average to complete a Form 1040 with
Schedule C-EZ or an additional 30 minutes to prepare one with a full Schedule C.
Time Required to Complete Tax Returns
200
1040
1040/C-EZ
Minutes
150
1040/C
100
50
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1 For this reason, some programs reported data for only the two to three sites that were supervised by the IRS, while others provided data for all
the VITA sites they operated at which Schedule Cs or C-EZs were prepared. Those marked with an asterisk in Table 1 above provided data only
for the two to three sites designated for IRS oversight.
— Page 4 —
Table 2. Schedule C Preparation Process
Sites with Separate Intake Sheet for Schedule C Filers, Additional Time Required to Complete Intake Sheet and Time Required
to Complete Form 1040, Form 1040 with Schedule C-EZ and Form 1040 with Schedule C
Time Required to Complete Return
Organization
Separate Intake
Sheet
Add'l Time for
Intake
1040
1040/C-EZ
1040/C
Yes
15
40
60
90
No
N/A
40
47
49
Center for Economic Progress
No
N/A
47
53
89
East Bay Asian Local Development Corp.
Yes
30
39
58
61
El Paso Affordable Housing
Yes
15
35
45
60
No
N/A
40
50
90
Just Harvest Education Fund
Yes
N/A
45
70
87
KC CASH Coalition
Yes
5
38
38
50
Rural Dynamics Inc.
Yes
7.5
30
45
75
St. Mary's University
Yes
20
60
75
180
No
N/A
45
80
120
Campaign for Working Families
No
N/A
45
60
90
--
17
42
57
87
Average
To compensate for the fact that more time and attention
are required to complete a return for a self-employed
taxpayer than for a wage-earning filer, many sites have
designed additional tools and procedures to help gather
as much information as possible before tax preparation
begins. Half of the participating sites developed additional
intake procedures to gather more detailed information
about their Schedule C filers to guarantee that their
filing needs fit the pilot parameters. On average, that
intake process added about 17 minutes to the overall tax
preparation process. Some sites used phone interviews
to determine clients’ needs and to make sure clients had
sufficient documentation prior to arriving at the VITA site.
Other programs developed a more detailed intake sheet
to be completed on site; some provided clients with tax
organizers to categorize their expenses and earnings and some instituted an appointment system to make sure that
clients could be screened before arriving for tax preparation and that ample time was allotted to prepare the return.
All programs take time after preparing taxes to educate their Schedule C clients about the importance of detailed
recordkeeping throughout the year, and many offer additional tools – organizers, expense trackers, additional
classes and IRS publications – and advise filers to use them to prepare for the upcoming year.
Those programs that used an appointment system to provide self-employment tax assistance, shown in Table 3
on the following page, often conducted separate screenings to take place prior to scheduling the appointment. At
some sites, self-employed tax assistance was made available at any time on a walk-in basis, similar to other VITA
services. Some programs accommodated clients differently at different sites, depending on capacity and availability
of preparers.
— Page 5 —
Table 3. How Did VITA Sites Accommodate Self-Employed Filers During Tax Season?
How do you accommodate self-employed filers during tax season?
Organization
Appointment
X
X
Walk-In
Designated Day
X
X
X
X
X
KC CASH Coalition
X
Rural Dynamics Inc.
X
X
X
X
Real$ense Prosperity Campaign
X
X
X
Pilot Scale and Impact
The Schedule C VITA Pilot sites prepared a total of 5,741 Schedule C or C-EZ tax returns during the 2011 tax season.
Of those self-employed filers, more than 60% filed a full Schedule C form rather than a C-EZ (see Table 6 in the
Appendix).
Number of Schedule C and Schedule C-EZs Prepared
CWF
Real$ense
Schedule C
St. Mary’s
Schedule C-EZ
RDI
KC CASH
Just Harvest
FC
El Paso
EBALDC
CEP
AAS
AAM
0
— Page 6 —
500
1000
Number of Returns
1500
2000
Who Did We Serve?
More than 85% of the self-employed tax filers served
Five Most Common Business Types
at pilot sites earned less than $30,000 in Adjusted
(as a percentage of Schedule C taxpayers)
Gross Income (AGI) in 2010 (see Table 7 in the
Appendix). Taxpayers’ AGI includes all income
Arts/Entertainment
earned, including wages reported on a Form 1040
Retail/Sales
(see Table 8 in the Appendix). Of the taxpayers
reporting earnings from self-employment at the
Janitorial Services
participating VITA sites, nearly two-thirds also earned
wage income during 2010. This suggests, as we have
Home Care/Health Care
learned from many other tax assistance providers,
Construction/Laborers
that low- to moderate-income entrepreneurs are often
operating businesses to help fill household income
Child Care
gaps. On average, 42% of the self-employed filers
0
5%
10%
15%
20%
served at these VITA sites received tax assistance
at the same sites the year before (see Table 9 in the
Appendix). Of those return filers, half increased their adjusted gross incomes from the year before, which suggests
the capacity for business income to serve as a critical gap filler and financial security enhancer for low-income
households.
Overall, the most common business types to receive
assistance at the local partners’ VITA sites included those
shown in Table 11 (on the following page). Of the 14 most
common businesses listed, childcare providers emerged
as a most common business type for eight of the 12 local
partners; on average, for those organizations, childcare
providers accounted for 19% of their self-employed
clientele. It is important to note that in many states where
local partners are located – including Michigan, Illinois
and Pennsylvania – state agencies operate programs
that pay family members to provide childcare for state
employees or students and treat those childcare providers
as self-employed sole proprietors, rather than employees.
In many cases, these childcare providers are, in fact,
operating intentional small childcare businesses.
The second most common business type was construction work and other labor, which appeared as a most
common business type at seven organizations. On average, construction workers made up about 15% of all Schedule
C filers at those organizations that listed them as a common business type. These top two business categories are
followed by home care and health care services, which appeared on the top five most common business lists of four
local organizations and accounted for an average of 11% of all self-employed filers at those sites. Next was janitorial
services, which made up an average of 10% of the business activity at the six sites counting this among the most
common types of businesses. The fifth most common business type was a tie between retail and sales – which
made up an average of 9% of the self-employed individuals served by five organizations that cited it as a common
business type – and arts and entertainment (including performing artists and writers) which also made up an
average of 9% of the self-employed individuals that filed at the three organizations citing this as a common business
type. For the remaining common business types, see Table 4 on the next page.
— Page 7 —
Table 4. Most Common Self-Employed Individual Business Types Reported by Local Partners
8%
15%
25%
7%
34%
KC CASH Coalition
7%
11%
7%
11%
3%
19%
6%
14%
6%
8%
8%
2%
2%
9%
8%
14%
9%
6%
5%
Real$ense
8%
14%
5%
n/a
Average % of All SE Filers
3
Frequency4
6%
4%
3%
14%
Rural Dynamics, Inc.
7%
6%
21%
Just Harvest
Specialty Trades
9%
11%
Retail/Sales
4%
17%
EBALDC
Repair/Maintenance
25%
Other Personal Services
7%
18%
Landscaping
3%
6%
Janitorial Services
4%
38%
Center for Ec. Progress
Home Care/Healthcare
20%
13%
Hairstylists/Barbers
6%
CWF
Educational Services
10%
Consulting
Childcare
8%
Construction/Labor
Arts/Entertainment
Delivery/Transportation
Common Business Types2
9%
19%
15%
8%
5%
7%
8%
11%
10%
2%
3%
6%
9%
6%
3
8
6
1
3
4
4
4
6
2
2
2
4
1
Most of the self-employed taxpayers served were “Single” filers (45%), followed by “Married filing jointly” (32%),
“Head of household” (21%), “Married filing seperately” (2%) and less than one percent filing as “Qualifying
widow(er).” It is important to note the high rate of single filers because by and large, single filers are not eligible
for the EITC because they do not have dependents, though they may be low-income (see Table 10 in the Appendix).
This is one reason why EITC claim rates are not higher. The primary age group served by the Schedule C VITA Pilot
sites was the “25-45 years” (43%) cohort followed by the “46-65 years” (39%), “25 years and under” (11%) and “65
years and over” (7%) groups (see Table 11 in the Appendix). This age breakdown is consistent with the filers served
by SETI grantees during the demonstration from 2006 to 2010.5
2 The final reporting form for local partners asked them to list the five most common business types owned for their self-employed filers and the
percentage of all self-employed filers for which each business category accounted.
3 This is only an average across the organizations that sited a certain type of business.
4 Number of organizations for which a certain business type was listed as one of the five most common.
5 Between the 2005 to 2009 tax years.
— Page 8 —
Schedule C Taxpayer Gender
100%
80%
60%
40%
20%
Male
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Female
Ethnic Breakdown of Self-Employed Taxpayers
On average, 46% of the self-employed taxpayers that
filed at Schedule C VITA Pilot sites were male, while
1%
54% were female (see Table 12 in the Appendix). Other
5%
White
demographic characteristics of filers served at these sites
varied by organization and mirrored certain regional
29%
Black
or local demographics. For instance, in San Antonio,
27%
Austin and El Paso, Texas, local partners served large
Asian/Pacific Islander
populations of Latino/Hispanic taxpayers and catered
Latino/Hispanic
to many Spanish-speaking clients by translating
their tools and materials and providing bilingual tax
Native American
preparation volunteers (see Table 13 in the Appendix).
7%
At East Bay Asian Local Development Corporation, half
Other
30%
of the self-employed filers served were Asian or Pacific
Islander and half of all self-employed filers also spoke
a language at home other than English. On average,
across all the local partner organizations, nearly one third of all self-employed filers live in a household where a
language besides English is spoken. This prevalence of self-employed filers for whom English is likely a second
language demonstrates the value and impact of the services offered at these VITA sites and emphasizes the need for
enhanced IRS educational outreach in immigrant communities.
What Challenges Did Self-Employed Filers Face?
The self-employed filers receiving assistance at these sites are, by definition, sole proprietors, operating “passthrough” businesses where revenues are passed directly through the business to the individual as income. Sole
proprietorships are businesses owned and run by one individual, in which there is no legal distinction between
the owner and the business. This individual – unincorporated entrepreneur, small business owner, self-employed
person, sole proprietor – receives all profits and has unlimited responsibility for all losses, debts and assets.
Essentially, a person can start a business and have no legal paperwork confirming its establishment until he or she
files an income tax return and reports self-employment earnings. Many new entrepreneurs do not even realize
when they cross a business-defining legal threshold. This is especially true of “necessity entrepreneurs” who are
motivated by lost jobs or other distressed circumstances.
— Page 9 —
The most consequential federal threshold is reached when a
sole proprietor earns a net profit of $400 or more in a calendar
year; this triggers their Social Security and payroll tax liability,
which is owed even when the business owner has no income
tax liability. Many self-employed filers learn for the first
time that they must pay payroll taxes as both an employee
and employer when they first file an annual tax return
documenting their business income. Because these taxes are
due over the course of the year in which they are incurred,
these filers often owe a penalty in addition to the taxes due for
the previous year. On average, at the Schedule C VITA Pilot
sites, 12% of the self-employed filers owed some kind of tax
penalty for the 2010 tax year (see Table 14 in the Appendix).
In addition, our local partners encounter many taxpayers
reporting self-employment income who are actually
misclassified employees and are unprepared for their tax
liability when they discover they owe both the employer and
employee portion of FICA taxes. In these situations, local
pilot sites educated the taxpayers about the implications
of filing as self-employed and their opportunities for
rectifying their misclassification. Though these filers are not
intentional entrepreneurs, they may benefit from the same
suite of services offered to self-employed filers at the sites
participating in the pilot.
What Opportunities Did Schedule C VITA Pilot Sites
Offer Taxpayers?
First and foremost, the Schedule C VITA Pilot enabled
low- and moderate-income self-employed taxpayers to
comply with their tax liabilities without having to pay
exorbitant fees to a commercial tax preparer. Oftentimes,
self-employed clients visit VITA programs after having been
to paid preparers in the past; they find improved quality
assistance and additional opportunities to learn about how
to improve their businesses in the future. The assisted tax
preparation process at VITA sites helps self-employed filers
better understand their business finances and learn about
their compliance responsibilities. In addition, a complex,
intimidating small business tax code becomes somewhat
less so when filers are guided by a qualified preparer. In
addition to helping filers prepare their 2010 taxes, the pilot
partners were committed to helping first-time Schedule
C filers calculate and submit their estimated taxes for the
upcoming tax year. Most of the local partner organizations
offer additional financial education or asset-building services
to their clients at tax time. These services vary from partner to
partner but include basic business record-keeping, pre- and
post-tax season trainings, meetings with pro-bono financial
planners, credit reporting, referrals to assistance with debt
— Page 10 —
“Being self-employed, I get scared
with taxes because I don’t know if
I’m doing and tracking things right.
Coming to AccountAbility Minnesota
each year, I’ve gotten smarter. They
educate me in a way a paid tax
professional never did before.”
– Mary, AccountAbility Minnesota
self-employed taxpayer
Mary has been coming to AccountAbility Minnesota
(AAM) to have her taxes prepared for the past four
years. She’s self-employed, working as a graphic
designer and a personal assistant. Having worked with
paid tax preparers before finding AAM’s services,
Mary appreciates not only the hundreds of dollars
she saves on preparation but the guidance and tools
that the staff and volunteers provide her – at tax time
and beyond – that enable her to run her business in a
smarter and more efficient way.
When Mary first began coming to AAM for tax
preparation, she sat down with Tom Larson, AAM’s
self-employment program coordinator, to talk about
her business. Together, they walked through reporting
requirements, discussed the importance of record
keeping year-round, outlined Mary’s business expenses,
and most importantly, identified an easy and efficient
way for Mary to track her expenses. With the help of
AAM’s self-employment tax organizer – a tool to help
self-employed taxpayers track their business expenses
– Mary can maximize the value of the tax credits she
has earned when she files her taxes. These tax credits
are now a valuable source of income for Mary that
she reinvests in her business to keep it growing to
meet her basic needs.
Mary is a small business owner and also a person
with a disability. Because of this disability, it takes
Mary longer than most to accomplish tasks and she
often needs to ask many questions to understand. She
appreciates the one-on-one, professional service and
attention that she receives at AAM and can’t afford
to hire someone to give her this much attention and
information. Having quickly exhausted her savings and
retirement just over 10 years ago when her disability
began to limit her ability to work, Mary has come
to trust AAM as a source for high-quality free tax
preparation and also for the free tools and training
materials that most self-employed business owners
pay for as an added business expense.
management and financial counseling, budget estimation and preparing estimated taxes for the upcoming year,
business credit planning and more (for more details, see Tables 15 and 16 in the Appendix). Some sites also make
asset-building financial products available, including basic checking and savings accounts, Individual Development
Accounts, savings bonds and prepaid debit cards loaded with a deposit from filers’ tax refund.
As it turns out, the largest direct federal support for microbusinesses comes not through federal credit programs,
like SBA or the CDFI Fund, but through the tax code. Each year, low-income self-employed tax filers claim over
$6 billion in Earned Income Tax Credit (EITC) refunds while in 2010, the SBA made just $3.6 million in grants for
the Program for Investment in Microentrepreneurs (PRIME), which provides grant support to organizations that
help microentrepreneurs. Filers at Schedule C VITA Pilot sites not only saved hundreds of dollars in commercial
tax preparation fees, but those who qualified were guaranteed access to federal tax credits like the EITC, Child Tax
Credit (CTC) and Making Work Pay (MWP) tax credit, offering injections of income that may be used to reinvest in
their microbusinesses or support their households. This tax season, more than half (56%) of all the filers served at
Schedule C VITA Pilot sites received the EITC, 31% received the CTC and 88% received the MWP credit. On average,
those EITC recipients collected a $1,583.60 refund and the CTC recipients collected a $1,315.55 refund (see Table 17
in the Appendix). The Making Work Pay credit, a provision of the American Recovery and Reinvestment Act of 2009
for the 2009 and 2010 tax years, provided working individuals with up to $400 and married taxpayers filing joint
returns with up to $800.
Conclusion
Each year, over 20 million taxpayers file a Schedule C. Of those, over half (60%) have adjusted gross incomes
under $50,000 and for nearly one-quarter (23%), that self-employment net profit enhances their Earned Income Tax
Credit. Even though a significant share of Schedule C filers report incomes that fall within VITA program scope,
most are not eligible to access this important service because the Schedule C form is out of scope for VITA. The
Self-Employment Tax Initiative, NCTC and IRS-SPEC have demonstrated that there is significant demand for this
service from low-income self-employed businesses and community-based free tax assistance providers are capable
of providing this service in a high-quality manner.
The 12 participating organizations delivered high-quality Schedule C assistance, tracked and reported lessons,
designed tools used for training and certification and informed the future direction of a more expansive rollout
of Schedule C services through the community tax preparation field. This pilot not only tested the viability of
expanding Schedule C VITA scope, it was also instrumental in legitimizing the Schedule C tax assistance that so
many VITA programs have been offering for years.
CFED recognizes the commitment of our funders to small and growing businesses and is grateful for their support of SETI.
CFED gratefully acknowledges the support of our funders, including Capital One, the Citi Foundation, Bank of America, Sam’s
Club, the Annie E. Casey Foundation, the Wal-Mart Foundation and the Northwest Area Foundation.
About CFED
CFED expands economic opportunity by helping Americans start and grow businesses, go to college, own a
home and save for their children’s and own economic futures. We identify promising ideas, test and refine them
in communities to find out what works, craft policies and products to help good ideas reach scale, and develop
partnerships to promote lasting change. We bring together community practice, public policy and private markets in
new and effective ways to achieve greater economic impact.
For more information about SETI, our partners and our programs during the 2010 tax year, contact us at
[email protected].
— Page 11 —
Appendix
Table 5. Percentage of Volunteer and Paid Staff Schedule C Tax Preparers
Volunteers
Paid Staff
98%
2%
5%
95%
58%
42%
100%
0%
50%
50%
100%
0%
100%
0%
20%
80%
KC CASH Coalition
99%
1%
Rural Dynamics Inc.
86%
14%
33%
67%
25%
75%
Average
65%
35%
Table 6.Tax Year 2010 Self-Employed (Schedule C and C-EZ) Returns Filed
Tax Year 2010 Self-Employed Returns Filed
Schedule C
Schedule C-EZ
Total
351
340
691
910
1,025
1935
60
249
309
42
46
88
104
11
115
56
231
287
1,548
222
1770
59
67
126
KC CASH Coalition
34
69
103
Rural Dynamics Inc.
141
1
142
79
2
81
53
41
94
3,437
2,304
5,741
Total
— Page 12 —
Table 7. Schedule C Taxpayer Adjusted Gross Incomes
Schedule C Taxpayer Adjusted Gross Income
< $5,000
$5,000$15,000
$15,001$30,000
$30,001$40,000
$40,001$50,000
> $50,001
29%
31%
28%
7%
3%
2%
28%
37%
25%
5%
2%
2%
21%
41%
24%
7%
4%
3%
22%
35%
25%
6%
7%
6%
23%
50%
17%
5%
3%
3%
18%
59%
23%
0%
0%
0%
18%
35%
33%
8%
4%
3%
33%
34%
25%
6%
2%
1%
KC CASH Coalition
19%
19%
36%
14%
9%
4%
Rural Dynamics Inc.
15%
31%
30%
8%
9%
7%
21%
37%
24%
12%
5%
1%
17%
25%
21%
11%
6%
20%
Average
22%
36%
26%
7%
5%
4%
Table 8. Percentage of Self-Employed Filers that Also Earned W-2 (wage) Income
Organization
What percentage of self-employed filers also earned W-2 (wage) income?
62%
47%
63%
66%
52%
75%
55%
61%
KC CASH Coalition
75%
Rural Dynamics Inc.
60%
36%
63%
Average
60%
— Page 13 —
Table 9. Percentage of Self-Employed Filers Returning from Tax Year 2009 and Percentage of Return Filers
with Increased AGI
Return Clients
Increased AGI
35%
57%
48%
55%
33%
N/A
50%
52%
40%
43%
N/A
N/A
59%
23%
64%
57%
KC CASH Coalition
18%
47%
Rural Dynamics Inc.
N/A
N/A
35%
67%
N/A
N/A
Average
42%
50%
Table 10. Schedule C Taxpayer Filing Status
Schedule C Taxpayer Filing Status
Single
Married
Married Filing
Separately
Head of
Household
Qualifying
Widower
55%
18%
2%
25%
0%
58%
13%
8%
21%
0%
52%
13%
3%
31%
1%
48%
24%
3%
25%
0%
54%
35%
0%
10%
0%
15%
78%
0%
7%
0%
37%
39%
2%
22%
0%
46%
17%
0%
37%
0%
KC CASH Coalition
48%
29%
1%
22%
0%
Rural Dynamics Inc.
40%
35%
3%
21%
1%
53%
43%
0%
4%
0%
30%
43%
0%
28%
0%
Average
45%
32%
2%
21%
0%
— Page 14 —
Table 11. Schedule C Taxpayer Ages
Schedule C Taxpayer Age
Under 25 Years
25-45 Years
46-65 Years
Over 65 Years
13%
47%
37%
3%
4%
33%
52%
11%
12%
41%
40%
7%
14%
39%
41%
7%
14%
43%
39%
4%
8%
74%
15%
3%
9%
61%
28%
3%
41%
18%
30%
11%
KC CASH Coalition
7%
45%
40%
9%
Rural Dynamics Inc.
4%
28%
54%
15%
1%
41%
51%
7%
0%
52%
42%
6%
11%
43%
39%
7%
Average
Table 12. Percentage of Schedule C Taxpayers by Gender
Male
Female
37%
63%
43%
57%
47%
53%
33%
67%
39%
61%
62%
38%
55%
45%
32%
68%
KC CASH Coalition
41%
59%
Rural Dynamics Inc.
55%
45%
58%
42%
48%
52%
Average
46%
54%
— Page 15 —
Table 13. Schedule C Taxpayer Ethnicity & Language
White
Black
Asian or Pacific Islander
Latino or Hispanic
Native American
Other
Language Besides
English Spoken at
Home
Ethnicity
45%
25%
7%
11%
2%
10%
23%
22%
72%
0%
4%
0%
1%
5%
17%
55%
5%
15%
1%
7%
9%
47%
34%
0%
14%
1%
3%
18%
14%
5%
52%
10%
0%
19%
51%
6%
4%
0%
90%
0%
13%
96%
24%
10%
3%
60%
0%
4%
60%
34%
57%
2%
4%
1%
2%
7%
KC CASH Coalition
43%
29%
6%
19%
2%
1%
17%
Rural Dynamics Inc.
N/A
N/A
N/A
N/A
N/A
N/A
13%
21%
5%
1%
72%
0%
0%
30%
52%
42%
3%
3%
0%
0%
14%
Average
27%
28%
7%
25%
1%
10%
29%
Table 14. Percentage of Self-Employed Filers that Owed a Tax Penalty for Tax Year 2010
Organization
How many self-employed filers owed a tax penalty?
8%
21%
17%
6%
48%
1%
10%
1%
KC CASH Coalition
5%
Rural Dynamics Inc.
5%
11%
11%
Average
12%
— Page 16 —
Table 15.Types of Asset Building Services and Products Offered
Asset Building Services and Products
Type of Service & Product Offered
Organization
6
% Take-up by SE Taxpayers7
Pro Bono Financial Planners
N/A
Savings Accounts at Credit Unions or Banks
N/A
Saver’s Credit Research & Survey
N/A
Credit Reports
N/A
Referral for Debt Management & Financial Counseling
N/A
Savings Accounts
4%
Savings and Checking Accounts
1%
IDAs
0%
Savings Bonds
2%
Financial Coaching
0%
Cash for College
7%
Debit Card with Deposit of Full Refund
N/A
KC CASH Coalition
Passive Financial Education
50%
Prepaid Debit Cards
N/A
No-cost Savings Accounts
N/A
IDAs
20%
Rural Dynamics Inc.
Real$ense
Table 16.Take Up of Trainings for Self-Employed Filers Offered and Attended Before, During and After Tax
Preparation
Business Trainings Offered & Attended Before, During and After Tax Preparation
Pre-Tax
Training
Is Training
Mandatory
to Receive
Assistance?
%
Attended
Offer During
Tax Season
Training
%
Attended
Offer PostTax Season
Training
%
Expected
to Attend
Yes
No
15%
Yes
15%
Yes
10%
No
No
N/A
No
N/A
No
N/A
No
No
N/A
No
N/A
No
N/A
No
No
N/A
No
N/A
No
N/A
EBALDC
No
No
N/A
No
N/A
No
N/A
Yes
No
2%
No
N/A
No
N/A
Yes
No
4%
Yes
3%
Yes
2%
No
No
N/A
No
N/A
No
N/A
KC CASH Coalition
No
No
N/A
No
N/A
No
N/A
Rural Dynamics Inc.
No
No
N/A
No
N/A
No
N/A
No
No
N/A
No
N/A
No
N/A
No
No
N/A
No
N/A
No
N/A
6 Only those organizations that reported asset building services and products are listed here.
7 If N/A, data was not collected.
— Page 17 —
Table 17. Percentage of Self-Employed Filers that Received Refundable Tax Credits and Average Amount of
Earned Income Tax Credit and Child Tax Credit
Refundable Tax Credits
% EITC
Average EITC
% CTC
Average CTC
% MWP8
53%
$1,409.00
33%
$1,882.00
85%
53%
$1,190.00
17%
$1,044.00
62%
58%
$1,559.00
2%
$310.00
92%
52%
$1,628.00
30%
$1,443.00
89%
57%
$995.00
17%
$985.00
88%
95%
$2,875.00
78%
$1,600.00
98%
45%
$1,902.00
43%
$1,401.00
95%
59%
$1,715.00
33%
$1,105.00
94%
KC CASH Coalition
50%
$932.40
33%
$1,461.00
92%
Rural Dynamics Inc.
50%
$1,623.58
35%
$1,553.56
96%
60%
$1,560.00
27%
$1,740.00
84%
36%
$1,614.24
22%
$1,262.00
78%
Average
56%
$1,583.60
31%
$1,315.55
88%
8 In 2009 and 2010, the Making Work Pay provision of the American Recovery and Reinvestment Act of 2009 provided a refundable tax credit of up
to $400 for working individuals and up to $800 for married taxpayers filing joint returns. Most wage earners benefited from larger paychecks in
2009 and 2010 as a result of the changes made to the federal income tax withholding tables to implement the Making Work Pay tax credit.
— Page 18 —

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