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L.A. council vows to recover $300M in lost tax credits

Los Angeles city hall in downtown area.
Los Angeles city hall in downtown area.

A large number of Los Angelenos may not be aware of the millions of money in earned income tax credits that they could claim but didn't know the proper procedures on how to do it.

The unclaimed pot is part of an estimated one billion dollars in earned income tax credits (EITC) that many Californians lost over time due to the absence guidelines on how taxpayers could avail of these tax credits.

However, this loophole would be changed for the better after the Los Angeles City Council had unanimously supported the motion introduced by Councilmember Richard Alarcon to increase the number of Los Angeles residents to know more and avail of the earned income tax credits that are supposed to be for them but failed to file claims for such tax credits. Of this total credits alone,  about US$300 million plus were not availed of by the Los Angeles residents.

A good news for many Californians because President Obama had increased the EITC credit to $5,675 per family, as a central part of his economic stimulus plan for this year. But Alarcon said that many Los Angeles families lose out hundreds of millions of dollars in tax credits because they didn't know about it. Although he expressed optimism that the present economic situation will no longer allow losing the economic stimulus, he said.

Alarcon said in a statement: "The date and technology is out there to help ensure that more people claim this credit, and it is time for the city and State to step up and help workers claim the money that they have rightfully earned."

Already, Alarcon held a Jobs and Business Committee meeting whose intention was to tackle the unclaimed EITCs and at the same time, hear representatives regarding innovative programs that could increase the number of persons who could claim the said EITCs. The meeting was attended by Sam Miller, the assistant commissioner of the city of New York's Department of Finance, who represented Mayor Michael Bloomberg who was respondible for bringing some $14 million in unclaimed EITCs for families and individuals in New York City. Also present during the meeting was L’Tanya Brooks, the area rirector for the IRS, who spoke about the opportunities for partnership between the IRS and the State of California.

During the meeting, Alarcon called on the Los Angeles City Council to look at the possibility of implementing what the New York City administration had done to work out on those unclaimed EITCs. Then those who failed to file claims on the previous year can request a pre-filled our form to claim the credit up to three years later. If this policy is implemented, there is a strong possibility that families and individuals in Los Angeles would be eligible for $10,000  or more in tax credits.

In response to this, the city council  has directed all city departments that operate programs for low-income families to include EITC information in January-April mailers each year. It also directed the Office of Finance to work with the Internal Revenue Service and/or California Franchise Tax Board to adopt a program similar to the New York Model and adopt it in Los Angeles. To facilitate this process, the city council had asked the Community Development Department to establish a Volunteer Income Tax Assistance (VITA) site at every Family Service Center.

Walen Ngo, Program Officer at the United Way of Greater Los Angeles, said the EITC could make a big difference for many families in so far as earned income tax credits are concerned. In fact, they can claim these tax credits and use them to pay for their annual income tax returns.

The statement added that the EITC lifted 5 million working families out of poverty each year by providing a tax refund to America’s lowest income earners. In Los Angeles, over 750,000 taxpayers claimed the EITC in 2006, providing $1.5 billion dollars back to them, with each one averaging about $2,000 . Unfortunately, tens of thousands of Angelenos who qualify for the EITC failed to file. In 2005 alone, some 42,302 Los Angeles households failed to collect the EITC dollars they were eligible for—amounting to a loss of $81,416,484 in unclaimed federal EITC dollars.