As tax season begins in the nation, once again tax companies are again targeting low-income filers with the so-called “convenience” of refund anticipation loans (RALs). However, city officials say that before taking the loan that could cost you more in the long run, take a look at some other options.
Commercials and posters are in heavy rotation this time of year for RALs that are similar to payday loans offering money 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 the option of receiving money right away, and then paying the money back when their actual refund comes in.
Coupled with fees that tax preparers already charge for services, the procedure can be very costly to a consumer. Last tax season, the city’s Department of Consumer Affairs (DCA) conducted a two-week-long enforcement sweep of income tax preparers throughout the city. DCA conducted close to 850 inspections citywide and issued violations to one in three income tax preparers for violations of consumer protection laws.
The department issued more than 1,000 violations to tax preparers who misrepresented their qualifications, violated consumer rights or illegally advertised refund anticipation loans (RALs) as “instant” or “rapid” refunds.
Commissioner Jonathan Mintz is encouraging New Yorkers to take advantage of the many options available for filing their taxes for free or very low cost.
“There are substantial tax refund dollars waiting for New Yorkers, who have, since 2002, claimed almost $20 billion in Earned Income Tax Credits alone,” Mintz said. “That’s why we’re making it as easy as possible for people to file their taxes and claim those refunds. And since the IRS issues these refunds in such a short amount of time, there’s no reason for such expensive, often deceptively sold loans getting in between you and every dollar of your refund.”
DCA inspected income tax preparers charged with violations in 2011 and 2010, as well as other preparers located in neighborhoods with large populations of immigrants and high usage of refund anticipation loans. DCA found that 65 percent of businesses that received a violation the year before were complying with the law.
In New York City, tax preparers must post their qualifications, fees and charges, and whether or not they will represent consumers at a government audit. Preparers must sign every tax return, and provide their customers with a copy of their tax return and a receipt for their services.
“This year, in addition to encouraging all New Yorkers to claim their refunds by filing their taxes for free or low cost, we want to make sure that we also address the needs of those affected by Superstorm Sandy,” Mintz said. “We are grateful to H&R Block for agreeing to let all residents in affected areas file the casualty loss form for free at any of their sites around the city.”
The city offers three ways to file taxes. First, New Yorkers with children who earn less than $50,000 or those without children who earn $18,000 can visit one of 91 VITA sites in the five boroughs where a certified volunteer will prepare their taxes for free.
Second, tax filers earning less than $57,000 can also file their taxes online for free through the city’s free tax-prep website at nyc.gov. The city partners with Intuit Inc.’s Turbo Tax Freedom Edition and myfreetaxes.com, powered by H&R Block.
Lastly, those who earn less than $41,000 with children or $18,000 if they don’t have children can also have their tax returns prepared at one of 51 participating H&R Block locations for just $49 with the city-sponsored coupon, which can be downloaded from nyc.gov.
All New Yorkers who live in ZIP codes affected by Hurricane Sandy are eligible to file the casualty loss form for free at any H&R Block regardless of income.