Tax Refunds Advanced to Low Earners

Things are looking up for Shirley Floyd of Chicago.

Her daughter just earned a college scholarship, and Floyd has landed a better job. The new job requires the 37-year-old to stand on a concrete floor, sometimes 10 to 12 hours a day, inserting automobile gaskets into cardboard sleeves for shipping. But her earnings, including overtime, are much larger than her $216 biweekly paychecks in 2014, when she was a part-time home health aide.

When Floyd was unable to keep her head above water last year, she received a financial lifeline from a program run by the Center for Economic Progress in Chicago. Under the pilot program, which was supported and funded by the Chicago mayor’s office and housing authority, 343 low-income recipients of the federal Earned Income Tax Credit (EITC) signed up for quarterly advances on their current year’s EITC payments, which they otherwise would have had to wait to receive the following year at tax time.

“It was an awesome program,” Floyd said about the advances, which always seemed to arrive at just the right time. “That pressure is relieved – for a little while. You’re able to do what you need to do.” She also believes quarterly payments are better than a large, one-time tax refund in February, because “the entire thing is gone” by March.

Under the Periodic Payment Pilot Program, low-wage workers with at least one child could get up to 50 percent of their estimated future EITC refunds as quarterly advances, up to a maximum of $2,000 per year. Floyd used her advances of nearly $400 per quarter to pay utility bills, rent, or her daughter’s tuition at a Catholic high school.

The average quarterly advances to program participants were $422. A preliminary evaluation by a University of Illinois team shows that one-third of program participants used the funds to pay off onerous payday loans, and the advances relieved the stress of making ends meet and feeding their families, said Dylan Bellisle, program manager.

David Marzahl, the center’s president, said the pilot was designed to improve on a similar federal program that was shut down in 2010.  That program, which provided very small EITC advances every week in low-income workers’ paychecks, didn’t catch on among workers and employers.

The center will release a full analysis of EITC payment frequency and other aspects of its pilot program later this summer. But Marzahl is convinced the concept works. “We’re excitedly awaiting the final results,” he said.