Unlocking the Power of Data Sharing in Tax and Benefits Administration

BPC’s latest research explores recent innovations at the local, state, and federal levels to improve public service delivery, and particularly awareness and take-up of tax credits such as the Child Tax Credit and Earned Income Tax Credit. This blog highlights the important role that data sharing plays and offers best practices for program administration.

What is Data Sharing?

Data sharing is a formal process in which government agencies exchange records (typically through formal agreements) at a program or individual level to support specific activities. Data sharing within and across agencies is often used to achieve one or more of the following:

• Eligibility verification: To streamline eligibility processes, agencies request access to data to confirm or verify program eligibility and help qualified individuals receive benefits. For example, agreements between federal and state agencies allow the IRS to share relevant tax information to make state tax return verification simpler for state administrators.
• Back-end user integration: To improve accuracy and efficiency, some agencies have developed robust data systems that work across programs to optimize service delivery. For example, the Administration for Children and Families’ (ACF) Interoperability Initiative allows agency staff to enter and search for relevant data across programs to inform decisions for clients.
• Front-end user experience: To improve customer service, some agencies have developed online platforms that streamline the application process for beneficiaries, allowing them to enter data once to confirm their eligibility for multiple programs. One example of an integrated system is the Georgia Gateway, which simplifies the front-end user experience while collecting consistent data that can inform agency decisions.

Legal Constraints Governing Data Sharing

Several statutes regulate the sharing of individual data within the federal government. The Privacy Act of 1974 governs how most agencies collect, maintain, and disseminate personally identifiable data in a system of records. Certain types of federal data are governed by additional laws and regulations, however, these statutes often make a distinction between interagency sharing of aggregated statistical data and Personally Identifiable Information (PII).

Health information must follow regulations set by the Health Insurance and Portability Act (HIPPA) and Health Information Technology for Economic and Clinical Health Act (HITECH), student data is governed by Family Educational Rights and Privacy Act (FERPA), and consumers’ personal financial information is protected by the Gramm-Leach-Bliley Act, to name a few. Other laws, including the E-Government Act of 2002 and Paperwork Reduction Act broadly impact agencies that collect and store information from the public. In addition, agencies often find themselves navigating specific regulations unique to each program. The U.S. Office of Information and Regulatory Affairs provides assistance to agencies seeking to comply with privacy policies.

When it comes to tax programs, the IRS faces strict data sharing regulations, which are detailed in IRC section 6103(d). While the IRS may disclose federal tax information to state and local tax authorities for tax administration purposes, they are prohibited from sharing data with non-tax agencies without legislative authorization or extreme circumstances.

The federal Chief Data Officer (CDO) Council’s Data Sharing Working Group provides resources to help facilitate responsible federal data management and sharing practices. Lack of awareness of agencies’ positions on sharing data, especially PII, and limited capacity to effectively navigate the complex legal landscape indicates that there are capacity barriers and aversion to risk. These limitations significantly restrict federal entities from utilizing this valuable data to improve federal decision-making and operations.

Best Practices to Facilitate Data Sharing

BPC has identified the following best practices for policymakers to consider as they weigh new systems to facilitate data sharing:

Prioritize Coordination between Agencies

The absence of program coordination, especially for agencies serving the same populations, can result in redundant or insufficient data to aid in service delivery. For beneficiaries, this yields administrative burdens as they navigate multiple government agencies and repetitive forms to determine eligibility for and receive benefits.

Despite the potential for efficiency gains, research suggests that leadership buy-in and organizational culture are two of the biggest barriers to data sharing. However, many agencies have made strides in cross agency collaboration. For example, ACF’s Interoperability Initiative has “reimagined” the potential to exchange data and maximize outcomes for beneficiaries with internal buy-in to the process.

Safeguard Privacy and Mitigate Risk

The advantages of data sharing must be balanced with beneficiaries’ privacy rights and protections, as reflected in several underlying statutes. Risk averse office culture and concerns of unintentionally violating privacy laws may limit agency participation in data sharing agreements; however, deployment of the proper safeguards can facilitate effective integration. This is especially important for front-end data sharing, which includes some direct outreach to potential beneficiaries—to safeguard individual privacy.

A major part of mitigating privacy risks is determining what information is highly sensitive and not appropriate to share. For example, when designing their enterprise integrated case management system for their Department of Health and Human Services, Montgomery County, MD separated case management data for their Victim Assistance and Sexual Assault Program and Child Welfare Services to preserve privacy. Proper staff training is also integral to data governance and risk mitigation practices.

Ease Administrative Burden

Successful data sharing initiatives can improve efficiency and equity among beneficiaries. Individuals are often eligible for multiple benefits programs, leaving them to fill out redundant forms and re-prove eligibility to access benefits. Back-end data sharing allows agencies to align program administration and more effectively target community outreach. On the front-end, designing data systems using a human-centered approach ensures that recipients are prioritized through accessible platforms, preserving their dignity when navigating the public services system.

Streamlining the application and approval process in one integrated benefit system can reduce administrative burdens for beneficiaries and the administrating agencies. As of 2023, 34 states offer integrated systems with three or more benefit programs. Four states—Colorado, Georgia, Michigan, and Nevada—have the most comprehensive systems that help individuals determine eligibility and apply for Medicaid, SNAP, TANF, child care, and the Special Supplemental Nutrition Assistance Program for Women, Infants, and Children (WIC) using one online portal.

There’s Always Room for Improvement

The CDO Council’s Data Sharing Working Group (DSWG) is working to tackle these challenges and accelerate data sharing across agencies. BPC supports many of their most recent recommendations, and offers the following areas for continued focus:

• Data Awareness: Agencies lack full information of the data collected across other government agencies, and how it is classified. Ensuring broad awareness of the Data Catalog Vocabulary could encourage data sharing. The DSWG eventually plans to distribute a data sharing playbook to support agencies building that infrastructure. k to support agencies building data-sharing infrastructures.
• Data Trustworthiness: Quality control reviews are critical for maintaining the integrity and accuracy of data. These can contribute to greater trust and promote use of data sharing infrastructure.
• Expedited Agreement Process: Developing data use agreements (DUAs) requires significant time and coordination. Lags in developing DUAs often lead to incomplete agreements or delayed data sharing. Creating a streamlined process could help ensure agreements can be executed in a timely manner.

As policymakers and agency officials continue to prioritize transforming infrastructure to support 21^st century tax and benefits delivery, effective data sharing practices remain critical to this success. If properly leveraged, government agencies at the federal, state, and local levels can work to improve services delivery for millions of Americans across the country.

Over the past year, BPC engaged in numerous discussions with experts and practitioners across the country who support federal, state, and local governments in administering refundable tax credits. This blog reflects several discussions about the challenges of data sharing in improving services delivery and the potential benefits when done effectively. We are grateful to the experts interviewed for their contributions of time and knowledge.