Unpaid tickets, tolls and court fees prevent poor Californians from receiving tax credits

An estimated 1 million Californians will not receive their full tax refunds this year as the state will intercept the money to pay off debts such as outstanding parking tickets, tolls, court fees, tuition and child support.

California’s poorest residents, who qualify for state tax breaks, will be hardest hit when money is earmarked for what Governor Gavin Newsom has proclaimed as “the largest cash assistance program against poverty in the country” will instead be returned to the government to cover unpaid bills.

Nearly 50% of Californians who received at least a portion of their state tax rebates for 2021 taken as part of their “offset” program earned less than $ 30,000 a year and applied for California Earned Income Tax Credit or Young Child Tax Credit , according to information compiled by the franchise tax board.

This means that the state’s tax relief program, which provides up to $ 3,160 in extra cash to eligible Californians through refunds, often never reaches the people they are meant to help, with funds that instead go to cities, counties, courts and other agencies to pay. of shoulder.

Of the nearly $ 92 million the state retained from tax returns in 2021, low-income California taxpayers who applied for tax breaks confiscated more than $ 35 million of that revenue, according to the Franchise Tax Board.

California established its own version of the federal income tax credit program in 2015 under the then government. Jerry Brown and Newsom have continued to expand the scope of the program, says i an announcement in January that it improves the health and education outcomes of children in the families who receive it.

The state’s creation of anti-poverty programs, including tax breaks and stimulus packages, while allowing the fundraising program to continue is like trying to “block a bleed at one end while another end is still an open wound,” said Courtney McKinney, a spokeswoman for Western. Center on Law & Poverty.

The organization, along with two dozen other defense groups, is asking the Newsom administration to immediately suspend all income taxes on debts to state and local governments through July, as it did during the worst of the covid-19 pandemic.

“It is counterproductive and cruel to rip these funds out of the hands of families to pay off old traffic and parking fines, fines and overpayments for public benefit purposes,” reads a letter sent last month from organizations to state inspector Betty Yee. “And it’s all the more worrying that the administration would allow this to happen when the state predicts tens of billions of dollars in budget surpluses.”

Most states collect overdue fees from tax refunds, but California and Illinois were the only states to pause fundraisers during the pandemic, according to a report from the Center for Public Integrity.

Yee noted the “serious economic consequences” of the pandemic in her suspension of the program last year, saying she hoped the break in the collections would “offer further relief to taxpayers.”

But she did not signal support for continued suspension, and said in a statement last week that 60% of wiretaps have already been completed this year. She said she “shares the advocates’ concerns” and pushes for state legislation that would exclude low-income earners from wiretapping.

No such bill has been raised by a state legislator.

“Controller Yee is currently focusing on a permanent solution to minimize the difficulties that tax refunds can cause low-income families,” said spokeswoman Jennifer Hanson.

Asked if Newsom would support a policy break, a spokesman for his administration said the governor “continues to explore ways to deal with income disparities and help families cope” and pointed to his support for interest-free payment plans and reduced civilian assessment penalties. .

A single mother of three in Sacramento, who works as a forklift driver, is among those who have had their repayment left by the state in previous years, in part due to unpaid repayment fines from 2016.

She estimates she’s entitled to about $ 3,000 in government tax breaks this year, which she says she would spend on birthday presents for her children, a new car or to pay off credit card bills. But she knows she will not get a refund because of her outstanding debt, which amounts to about $ 17,000 – more than twice as much as she earns in one year.

Ten percent of her paycheck is already garnished due to outstanding debts.

“I want to pay it back. I want to correct my mistakes,” said the mother, who asked not to be identified due to a restraining order for domestic violence. “It’s just a vicious circle. It’s really hard to get ahead when you have no money. It feels impossible. “

Low-income families depend on annual tax rebates as a financial safety net, the proponents wrote in the letter to the state.

“Without a moratorium, some families will have their state tax rebates confiscated to pay for parking tickets and court-ordered debts, which in some cases are decades old,” the letter said. “This means that these repayments – which are often government tax breaks designed to support low-income households – will not be available to pay outstanding balances for rents, utilities, student loans and credit card payments that are now under increasing pressure as financial aid runs out. and sends people across an economic cliff. ”

The Franchise Tax Board estimates that annual revenue from the offset program’s recovery efforts will amount to $ 374 million, affecting 1 million taxpayers.

The board collects fees from repayments, lottery winnings and unclaimed property on behalf of cities, counties and authorities requesting help with debt collection, even though government agencies’ participation in the program is voluntary.

In California, more than 500 agencies use the program, including the Department of Motor Vehicles, the Department of Child Support Services, the Employment Development Department and California Community Colleges.

The Chancellor’s Office of the California Community Colleges said in a statement that they support the suspension of fundraising through July despite its participation in the program.

Debts were collected from 8,371 tax returns commissioned by California Community Colleges for unpaid tuition in 2021, totaling nearly $ 1.2 million, according to government data. About two-thirds of the system’s students have a household income of less than $ 30,000 per year.

“The Chancellor’s Office agrees that students who cannot afford to pay outstanding balances should not be prevented from registering, and we have encouraged colleges to use pandemic assistance funds to forgive debt during the crisis,” said Vice Chancellor Paul Feist.

Tax refunds can be intercepted to meet debts as small as $ 10 and even if people are already involved in payment plans to pay off those debts. The state also has the right to withhold federal tax rebates.

The state can collect unpaid tax debts for up to 20 years from the due date.

Victoria Ramirez, a spokeswoman for the Franchise Tax Board, said government officials “could not quickly or easily change our offset program” and that an attempt to change the policy would now involve tax return processing and risk.

“Although [the Franchise Tax Board] “interrupts or cancels its compensation program, it does not invalidate the debt or stop recovery attempts from qualified creditors / agencies that can use private debt collection companies that can be more aggressive and more expensive for taxpayers,” she said.

Proponents of her case have been working to make the actual transcript of this statement available online.

“Bank charges and wage foreclosures do not present the contradictory policy issue we raise here: Tax deductions remove EITC and CTC tax deductions designed by the legislature to help children and households with very low incomes,” McKinney said.

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