Tax time is upon us. This means many of us will be collecting our W-2 forms and other documents so we can get our tax refund as quickly as possible from the Internal Revenue Service. Unfortunately there are many who are not good consumer shoppers and will fall victim to predatory practices or outrageous loan charges.
For a number of years government agencies, consumer watchdogs, and news organizations have been warning the public, especially low and moderate income taxpayers, about the practices associated with Refund Anticipation Loans (RALs).
The New Jersey Legislature recently passed a bill that attempts to warn taxpayers about RAL charges, requiring tax preparation services to disclose their fees and the annual percentage rate for the loan. The legislation was signed by Governor Corzine on January 11, 2008. The bill text is online.
Basically, refund anticipation loans are consumer loans with very high interest rates. Loans are not issued much faster than if a taxpayer filed their return electronically and had the refund directly deposited into their bank or checking account.
New Jersey is one of the few states that require financial institutions to offer low-cost, low-volume basic checking accounts. Known as a New Jersey consumer checking account, a consumer can establish a checking account with a $50 initial deposit and receive 8 free checks per month. Customers need only maintain a $1 minimum monthly balance. With a consumer checking account low-income taxpayers can get their refunds quickly.
It has been estimated, according to a Wikipedia article, that "more than half of all RAL consumers are low-income recipients of the Earned Income Tax Credit (EITC), despite the fact that EITC recipients constitute only 15% of all taxpayers." To protect taxpayers from being lured into "get your money back fast" a number of actions are required. Information should be distributed to inform that free tax preparations sites are available to low and moderate taxpayers who earn up to $40,000. Two popular programs are the AARP Tax-Aide and the Volunteers in Tax Assistance (VITA).
Even though more than $880 million was claimed in 2006 by New Jersey taxpayers under the Federal EITC program, more work is needed to spread the news to families and individuals who may have just become eligible for EITC due to the slowing economy or job layoffs.
Another tax assistance resource is known as Free File. Operated as a public-private partnership between the IRS and a group of tax software companies, the Free File Alliance provides a free tax filing service to taxpayers with an Adjusted Gross Income of $52,000 or less. In 2007, 3.9 million returns were e-filed through the program. However, 70% of all taxpayers – 95 million Americans – are eligible for Free File.
Please pass the word about EITC, VITA sites, AARP Tax-Aide, Free File and other tax assistance services offered in the community. For a list of available sites and agencies in New Jersey visit the NJ Earned Income Tax Credit page.
