By Cyril Josh Barker
February 9, 2012
As tax season begins in the nation, tax companies are once again targeting low-income filers with the so-called "convenience" of refund anticipation loans (RALs). However, city officials advise taking a look at some other options before taking the loan that could cost you more in the long run.
Commericals and posters are in heavy rotation this time of year for RALs, which are similar to payday loans offering money due from a refund immediately. The amount is secured by your tax refund, but interest rates can go as high as 600 percent. Upon filing, customers are offered their money in advance, within days or even hours, then pay the money back when their actual refund comes in.
Coupled with the fees that tax preparers already charge for services, the procedure can be very costly for the consumer. Numbers from Bloomberg LLP indicate that companies that offer RALs make almost $760 million on fees alone.
According to a report from the Woodstock Institute, Black taxpayers are 3.6 times more likely to use RALs. Black tax filers also spent 3.3 percent of their refund on fees from RALs, draining wealth from communities of color.
New York City Department of Consumer Affairs Commissioner Jonathan Mintz said that the city offers several services to filers so that they can get their money and advises against using RALs.
"Refund anticipation loans are terrible and costly short-term loans," he said. "If you file your taxes, you can get your money in a week in some cases. We have several ways for people to avoid expensive loans."
The city has three ways for people to file their taxes. The first includes Volunteer Income Tax Assistance (VITA) sites across the city, which offer free tax preparation for families with children making less than $50,000 a year and single people earning less than $15,000 annually.
H&R Block and the city have come together to offer tax preparation for $29 for families with children earning less than $41,000 and single filers making a maximum of $31,000.
Lastly, taxes can be filed online for free for people making less than $57,000. In partnership with Intuit Inc. and One Economy Corporation, filers have the option of using TurboTax online at no charge.
Mintz is also urging New Yorkers to use the SaveUSA program, which allows filers to open a savings account with at least $200 from your refund for a year and earn 50 cents for every $1 you save, with a maximum match of $500. The program was launched in New York last year and has now gone national.
"The program is offered at some of our VITA sites," Mintz said. "If you save it for a year, we will match people 50 cents on the dollar up to $500. It's completely zero risk, and if people feel like they need to take the money out of the account, they can with no penalty."
During the tax season, it's also important to mention the Earned Income Tax Credit (EITC). The refundable federal income tax credit is for low- to moderate-income working individuals and families. Qualifying families and individuals can get, on average, $2,350 per return. The IRS reports that 20 to 25 percent of eligible workers miss out on the credit.
Rep. Charlie Rangel, who has been an advocate for the EITC over the years, urges people to find out if they qualify to get the money they may need.
"The credit also helps the economy, because it gives people disposable income to just take care of things," he said.
For more information about tax services offered by the city, visit www.nyc.gov/taxprep. Information about the EITC and other tax questions can be found at www.irs.gov.
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