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New York City’s Department of Finance is trying to help low-income New Yorkers – so much so that last month it mailed amended tax returns to thousands of taxpayers in the five boroughs who appeared to be eligible for significant refunds from combined federal, state and city Earned Income Tax Credits.

All the taxpayer had to do after getting the package was fill in a few blanks on two forms and mail them to the IRS, although some took their amended returns to free tax preparation centers. It turns out, however, that more than one-third of those people were not eligible to receive the money DOF told them they could get after looking at their 2003 and 2004 tax returns – in some cases as much as $6,000 for one year. And recipients of DOF-amended returns letters aren’t finding this out until their tax preparers tell them – if they find out at all.

“After we did the mailing, it was discovered that some of the notices went to people who were not eligible,” said DOF press secretary Owen Stone. EITC eligibility depends on variables of income, marital status and number of children in the household, but one unwavering requirement is that everyone claimed on the tax return of an EITC applicant must have a Social Security number.

But from the 118,000 city households that received application forms from DOF, taxpayers filed 48,000 returns under Individual Taxpayer Identification Numbers (ITINs), a substitute for Social Security numbers the IRS makes available to immigrants working in the U.S. Since they filed using ITINs instead of Social Security numbers, they are automatically disqualified from claiming the EITC – thus thousands of families were misled into waiting for a payout that’s not coming.

And according to Stone, DOF will not be notifying these families of the mistake, though he said that in future years DOF certainly won’t send amended returns to ITIN holders.

DOF’s error has already made a mess for New Yorkers with ITINs and without a firm grasp of English, said Kelly Dillon, chairperson of the board at Ariva, a nonprofit based in the Bronx that offers free tax preparation services to low-income New Yorkers funded by Citizens for New York City’s Cash Back program. Through Cash Back, Ariva operates Volunteer Income Tax Assistance (VITA) sites around the city where people who can’t afford professional tax preparation can get their taxes done – sites that have seen an influx of confused New Yorkers holding letters from DOF, Dillon said.

“We got a lot of folks who came in with those letters,” Dillon said. “They got the letters and they don’t qualify because they have an ITIN.” She added that the broken promise of a bonus check combined with a language barrier between volunteers and many clients has caused a lot of frustration.

“They get this letter saying that they’re going to get this money, and it’s been difficult to convey to people at VITA sites that, ‘sorry, you’re not going to get this money,’” Dillon said. “In some cases, people think we’re to blame somehow.”

The confusion isn’t limited to the Bronx, said PJ Kim, project director of Food Change. He explained that his organization, which handles 75 percent of the city’s free tax preparation for low-income New Yorkers, has dealt with several cases citywide in which puzzled taxpayers with ITINs brought in letters from DOF.

For the ITIN holders who do not seek tax help – or for those who slip through the cracks at a volunteer tax preparation site and file an application for a credit they can’t receive – the hassle should end with a simple rejection letter, said IRS spokesman Kevin McKeon. But if they find that a household received EITC money without being eligible for it, McKeon said, that household will have to return the money, with interest – and pay a penalty.

Those familiar with the credit at both the national policy and local service levels agree that the families who received DOF letters and are eligible for the credit – a wage subsidy offered by the federal government since 1975 and adopted at the state level by many states since then – will greatly benefit from the program. “The EITC does more than any other program to literally get people’s income past the poverty level than any other program in the U.S.,” Kim said.

“It’s not only putting tax dollars that have been withheld back in your pocket,” explained John Wancheck, director of an EITC outreach campaign for the Washington-based Center on Budget and Policy Priorities. “It’s also giving you additional income.”

Many cities have developed programs to encourage residents to apply for federal and state tax credits, but alongside Montgomery County, Maryland and San Francisco, New York is one of only three localities in the U.S. with its own additional earned-income credit. While the IRS sends notification letters to taxpayers eligible to receive the EITC, New York is the first entity to literally send eligible taxpayers everything they need claim the credit.

Though taxpayers in 30,000 households may not know or are just finding out that DOF’s promise to help them get tax credits was made in error because of the ITIN issue, the city has given 90,000 more households a first step to getting money they may sorely need.

“This is the single negative in a really good program,” said Stone, the DOF spokesman. “The program itself is still putting over $100 million into the hands of New Yorkers,” he explained. “But it’s going to 30,000 less households.”

More than 800,000 New Yorkers had already received the credit for 2004 before DOF sent out its mailers, Stone added, and his department from now on will mail amended returns annually to New Yorkers who are eligible for the credit but do not apply.

The numbers in this article have been corrected.

– Nick Judd

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