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A SPECIAL POLICY ISSUE FROM THE ANNIE E. CASEY FOUNDATION
WINTER 2009
Refundable tax credits aid non-custodial fathers

When Odalis Beard learned that he was eligible for a new refundable tax credit for low-income working parents who don't have custody of their children, he was pleased that he'd have some extra money to spend on his eight-year-old son Richard.

"I don't make that much money," says Beard, 40, of New York City, who works part-time stocking shelves at a grocery store. "When I get something, the first thing I think about is my son."

In 2006, New York became the first state to offer non-custodial parents an Earned Income Tax Credit (EITC), a well-known tool to reduce poverty and encourage work. The largest cash assistance program for low-income families, the EITC has traditionally benefited custodial parents, primarily single mothers, and their children.

By providing the credit (or tax cut) to non-custodial parents, primarily single fathers, New York hopes to increase the men's income, work participation, child support payments, and parental involvement. Washington D.C. has adopted a similar program.

"It is one of many tools to get fathers to understand the importance of being both financially and emotionally responsible," says Kenneth Braswell, director of the New York State Fatherhood Initiative, which is operated out of a state agency that oversees programs for low-income adults, including the new tax credit.

"The intent is to provide an incentive to get more individuals to try to pay their child support in full," says Braswell, "and to provide some financial relief for non-custodial fathers paying child support, given that they cannot write off their payments on their tax returns."

New York State's pilot program, available to parents earning about $34,000 or less, reflects growing national interest in an important anti-poverty tool-tax credits that are refundable so that a family not earning enough to pay taxes gets the credit as a refund. President Barack Obama proposed several refundable tax credits during his campaign.

In New York, the new tax credit went to only 5,280 residents (out of about 40,000 potentially eligible) during its first year, with the state distributing just over $2 million. The average refundable credit was $392; the highest, for lower-income families, was $1,024.

Some of the barriers affecting participation and effectiveness include the difficulty of finding eligible parents to let them know about the credit, a requirement that a parent must have paid child support in full during the current tax year, and a federal law mandating that tax refunds of parents who owe child support from previous years be intercepted to offset debt.

A Columbia University evaluation of the new tax credit, supported by the Casey Foundation, will examine the factors limiting non-custodial parents' participation, how parents are spending their credits, and the impact on their employment and earnings.

"This is just a start," says Braswell. "If we find that people are doing significant things with the money, it gives us a case to expand and get more people in the door."

Odalis Beard, of New York City, who received a refundable tax credit for non-custodial parents, enjoys an afternoon out with his son Richard, picking him up at school and eating at a pizzeria.