Jewish World Review Jan. 30, 2007 / 11 Shevat, 5767
Tax-time saving tip: Free filing is available
By Vicki Lee Parker
http://www.JewishWorldReview.com | (MCT) There are several things that consumers do that make me want to grab them by the collar and shake some sense in them - a phrase my grandmother was fond of using whenever I made a fool of myself.
Topping my list today: people who agree to pay excessive fees for refund anticipation loans offered by the major tax preparers, such as H&R Block and Jackson Hewitt.
What rattles my nerves is that many of the people paying these fees have low or moderate incomes, and they would qualify to have their returns done for free. If most of them would just wait a week or so, they could have the full refund they are entitled to - and save several hundred dollars to boot.
The fees for refund anticipation loans can be staggering.
Customers are typically charged fees for the refund anticipation loan, electronic filing, tax preparation and a short-term bank account for those who don't have a checking or savings account. It can easily add up to $250, or even as much as $400, depending on the size of the loan.
And now, with the newest pay-stub lending product - where tax preparers use consumers' year-end pay stubs to estimate their refund and sell them a loan based on that amount - that figure could increase by $100 more.
Despite stern warnings from consumer advocates that refund anticipation loans are rip-offs, people still march into tax preparation offices and demand them. And the companies continue to market them, despite increasing criticism.
"There were 492,318 refund anticipation loans in North Carolina in 2004," said Adam Rust, research director at the Community Reinvestment Association of North Carolina in Durham. Nearly two-thirds went to filers who were eligible for the federal Earned Income Tax Credit, given to qualifying low- to middle-income families, he said. That resulted in about $62 million going to large corporations instead of families.
"To have the EITC be undermined by a product like this I'm sure is frustrating to the people who designed" the tax credit, he said.
Given all the cons of these loans, I was struggling to understand why so many would get them. Then I thought about my grandmother.
She would often ask me, "Girl, don't you know better than that?" Sometimes the honest answer was, "No, I don't."
I found that that was the case with many people who apply for refund anticipation loans. They are not aware of some of the programs available to help them prepare their tax returns for free and get them all of their refund.
So here are some things that people should know if they are thinking about applying for a refund anticipation loan:
I know that there are a few financial emergencies that might justify paying high fees for a refund anticipation loan, such as if you are about to be evicted. But there are far more reasons not to get one.
And now that you know some of those reasons, here is one more pearl of wisdom from my grandmother: "Now that you know better, do better."
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Vicki Lee Parker is a columnist for The News & Observer. Comment by clicking here.
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