Poor Californians are unable to claim tax credits because they have unpaid fines, tolls, and court fees.

Approximately 1 million Californians may miss out on their full tax refunds this year because the state will take the money to pay off outstanding debts, including outstanding parking tickets, tolls, courtroom costs, tuition, and child aid.

Paying back money that was supposed to go to Gov. Gavin Newsom’s “largest anti-poverty cash assistance program in the country” will instead be returned to the federal government to cover unpaid payments, which could have a particularly difficult impact on the poorest residents of California who qualify for the state tax credit.



According to information gathered by the Franchise Tax Board, nearly half of all Californians who had at least a portion of their 2021 tax refunds taken by the state as part of its “offset” collection program earned less than $30,000 a year and applied for California Earned Earnings Tax Credit or Younger Child Tax Credit.

Tax credit programs that are meant to help eligible Californians get up to $3,160 in additional money by way of refunds are instead used to pay off the debt by cities, counties, courts, and other corporations, rather than the people they were intended to help.


According to information from the Franchise Tax Board, low-income Californians who applied for tax credits forfeited more than $35 million of the over $92 million the state saved on tax returns in 2021.

In 2015, then-Gov. Jerry Brown established California’s own version of the federal Earned Income Tax Credit program, and Newsom has continued to expand the system’s reach, saying in a January proclamation that it improves the health and educational outcomes of children in households that receive it.

It’s like attempting to “plug a hemorrhage on one end while the other end remains an open wound,” as Western Center on Law & Poverty spokesperson Courtney McKinney put it when the state creates anti-poverty programs like tax credits and stimulus packages while allowing the collecting program to continue.

The group is requesting the Newsom administration to immediately drop all earnings tax intercepts for money owed to state and local governments by July, as it did during the worst of the COVID-19 outbreak, along with more than two dozen other advocacy groups.

According to a letter sent last month from the organization to state controller Betty Yee, “it is unproductive and ruthless to pull this cash out of households’ hands to refund obsolete visitation and parking tickets, prison charges, and public benefit overpayments.” Furthermore, the administration would allow this while the state expects to have tens of billions in budget surplus.”

California and Illinois, according to research by the Center for Public Integrity, were the only two states to stop collecting overdue taxes during the pandemic.

The method was suspended by Yee last year because of the “severe financial impact” of the epidemic, which she thought would “offer further relief for taxpayers.”

She didn’t support the halt, though, noting in an announcement last week that 60% of intercepts had already been completed this year. According to her, she “shares the advocates’ considerations” and is working to get state laws passed to protect low-income tax filers from being intercepted.

No action has been taken on this bill by a state legislator.

“Controller Yee is currently focused on a long-term solution to reduce the pain tax refund offsets may cause low-income people,” spokesperson Jennifer Hanson said.

Questioned about his position on the policy, an administration official said that Newsom “continues to seek ways to deal with earnings inequality and help households make ends meet,” citing the governor’s support for interest-free loan programs and reduced civil assessment penalties.

Due in part to unpaid restitution charges from 2016, a single mother of three who works as a forklift operator in Sacramento has had her refund saved by the state in previous years.

State tax credits are expected to provide her with around $3,000 this year, which she intends to spend on birthday presents for her children, a new car, or to pay off her credit card debt. Her outstanding debt of $17,000 is more than twice her annual salary, so she knows she won’t be getting any money back from the sale.

Due to outstanding debts, ten percent of her pay has already been withheld.

“I’d like to pay it back. ” Due to a domestic violence restraining order, the mother wanted anonymity. “I hope to correct my mistakes,” she said. Only a revolving door exists.” When you’re strapped to funds, moving forward is just difficult. It’s almost as though it’s not possible.”

Advocates noted in a letter to the state that low-income families rely on annual tax returns as a financial safety net.

State tax returns might be used to pay for parking tickets and court-ordered debts that are decades old without a moratorium, according to a letter from the Department of Revenue.

These refunds—which are often state tax credits designed to support low-income families—will not be available to settle outstanding rent, utility, student loans, and credit card debts that are currently under increased pressure when monetary aids stop, throwing people over a financial cliff,” says the author.

One million taxpayers will be affected by the offset program’s assortment of efforts each year, according to the Franchise Tax Board.

For cities, counties, and corporations that ask for help with debt collection, the board collects charges from refunds, lottery prizes, and unclaimed property. However, participation in this system by government organizations is voluntary.

There are more than 500 enterprises in California using this system, including the Department of Motor Vehicles, the Division of Children’s Aid Organizations, the Employment Growth Division, and the California Group Schools Divisions.

By way of an announcement, the CSU Chancellor’s Workplace stated its support for suspending collection activities through July, notwithstanding its participation in this system.

Almost $1.2 million in outstanding tuition was collected from 8,371 tax returns for California Group Schools in 2021, according to state knowledge. More than two-thirds of the pupils in the system come from families with annual incomes of less than $30,000.

Paul Feist, the vice-chancellor of the Chancellor’s Workplace, said that the Chancellor’s Workplace agrees that students who cannot afford to pay outstanding debt should not be stopped from enrolling, and we have encouraged institutions to use pandemic aid monies to forgive debts during the tragedy.

Tax refunds might be used to pay back debts of as little as $10, even if the debtors are already working together on a repayment plan. The state could also be granted permission to withhold federal tax returns from its residents.

The state has the power to collect unpaid taxes for up to 20 years after they are due.

According to Franchise Tax Board spokesman Victoria Ramirez, state officials “cannot quickly or simply amend our offset program” and that trying to change the policy now would put tax return processing at risk.

After canceling or suspending its offset program, the Franchise Tax Board does not nullify or stop collection efforts by certified collectors/businesses that may use non-public debt collection agencies that may be more aggressive and costly for taxpayers,” she stated.

In contrast to income-based wage garnishments, activists contend that tax refund interceptions are far more hazardous because they do not provide the same protections for low-income citizens.

Bank levies and wage garnishments don’t provide the conflicting policy issue we’re emphasizing right here: Tax offsets remove the EITC and CTC tax credit that the Legislature created to assist children and families with very low incomes,” McKinney said.

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