NH Earned Income Tax Credit

Individual Development Accounts (IDAs) have emerged in the last few years as a new way for low-wage workers to develop a substantial savings account. IDAs are “matched savings accounts,” in which savings deposits made by a worker are matched by contributions from IDA program funds. Organizations administering IDA programs use federal or state funds authorized for IDAs, and additional funds from foundations and financial institutions, to supply the match.

IDA accounts are designed to enable workers to obtain a valuable asset, such as a down payment on a home, college education, job training, a computer, a car or small business financing. Low-wage workers often experience great frustration with the long time it takes to save enough to meet these goals. The matched savings feature of IDA accounts responds to this concern by helping depositors build their savings more quickly. A limit is generally placed on the amount workers may deposit each year and also on the total amount that can be deposited. Since IDA programs are supported by a variety of sources and administered locally, the match rates and maximum deposit rules vary by program.

A study of EITC recipients by the Center for Policy Research at the Maxwell School, Syracuse University, found that almost one-half of those surveyed said they planned to save some or all of their EITC refund check, rather than use it all to pay bills or make immediate purchases. Respondents mentioned asset-building goals, such as paying tuition or purchasing or repairing a car, as priority uses for their EITC. The IDA match can multiply a worker’s own savings — doubling, tripling or even quadrupling the amount they deposit, depending on the IDA program and the purpose for which the worker has designated the IDA account.

For example, the weekly take-home pay of a full–time worker with three children who earns $7 per hour (about $14,500 per year) is about $250. If the worker saves five percent of his or her weekly take-home pay — about $12 each week or nearly $50 each month — the annual savings comes to $624. Over three years, the worker will have saved $1,870. But, in an IDA account that matches two dollars for each dollar saved by the worker, those savings multiply to more than $5,500, not counting interest on the account. While this worker might struggle to save $50 per month, the EITC can help take the pressure off. For work in 2006, this person could be eligible for an EITC worth $4,209 and a Child Tax Credit refund worth $375. He or she could also opt to receive Advance EITC payments totaling over $100 in additional take-home pay each month and use some or all of the extra cash to make deposits into an IDA account.

Some Asset Development Programs

Asset development programs for low-income workers are taking hold around the country.

Following are some of the most notable programs and how to find out more about them.

Two organizations lead national efforts to develop IDA programs and other asset development policies: The Corporation for Enterprise Development in Washington, D.C. at (202) 408-9788, and the Center for Social Development, at Washington University, St. Louis, Missouri at (314) 935-7433.

The IDA network.

Successful federally supported IDA demonstration programs, such as those authorized by the Assets for Independence Act (AFIA) administered by the U.S. Department of Health and Human Services, have spurred a rapidly growing network of organizations that administer IDA programs. IDA programs already exist in about 350 communities across the nation. For more information, visit the Corporation for Enterprise Development website at: www.cfed.org.

IDAs for people who receive public benefits.

Federal welfare law permits states to design IDA programs to benefit welfare recipients beginning the transition to employment. States may use their TANF block grant funds to support IDA programs. Individual savings and matching contributions in accounts under IDA programs which meet the requirements of federal welfare law (or IDAs in the AFIA demonstration program) do not affect a person’s eligibility, or benefit amount, for cash assistance and other public benefit programs. Assets in other types of IDAs, however, are not necessarily excluded as a resource in determining eligibility for benefit programs such welfare or food stamps.

IDAs for refugees.

The Office of Refugee Resettlement (ORR) under the U.S. Department of Health and Human Services provided grant funding in 2003 for 49 nonprofit organizations in 19 states to develop IDA programs for low-income refugees. For more information about the Refugee Individual Development Account Program, contact Lisa Campbell, Office of Refugee Resettlement, (202) 205-4597 or lcampbell@acf.dhhs.gov.

Family Self-Sufficiency Program (FSS).

FSS is a program that promotes employment and saving among families that have Section 8 housing vouchers or live in public housing. Under FSS, tenants agree to reach certain employment and training goals. Usually, as tenants earn more from employment, their rent payments will increase.

But FSS participants can get a refund of some or all of their increased rental charges in an amount equal to about 30 percent of their increased income. This amount is deposited by the housing agency into FSS escrow accounts established for tenants and HUD reimburses the agency for the escrow deposits. When tenants meet the goals of the FSS agreement, they receive the full amount in the escrow account, plus interest. Some families accumulate as much as $10,000 in their escrow accounts; the average received by families that complete the program is nearly $5,000. For more information, see “The Family Self-Sufficiency Program” at: www.cbpp.org/4-12-01hous.htm

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