Tax season is underway and companies are once again targeting low-income filers with the so-called convenience of refund anticipation loans. However, experts continue to 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, which are similar to payday loans, offering money from a refund immediately. A March 2016 National Consumer Law Center report noted that refund anticipation checks generally cost $25 to $60 for the federal refund. Although RACs are not typically considered loans, it should be noted that if a taxpayer pays $35 to defer payment of a $350 tax preparation fee for three weeks, the interest rate would be equivalent to 174 percent.
A new federal law, the PATH Act, requires the Internal Revenue Service to hold refunds until Feb. 15, 2017, for filers who claim the Earned Income Tax Credit or the Additional Children Tax Credit. Most refunds will then be issued in approximately 21 days, which is almost three times as long as previous years.
Those who claim EITC and ACTC are often low- to moderate-income working individuals and couples. A 2016 report by the Urban Institute concluded that this tax season is the first time that delaying refunds for a specific group of filers has been used in an attempt to prevent errors and fraud.
“We are already seeing paid preparers who seem to be capitalizing on the delay in refunds by heavily promoting their refund advance products,” said DCA Commissioner Lorelei Salas. “New Yorkers need to be extremely wary of any promises to get their refund sooner—the IRS won’t accept returns until Jan. 23 and can’t issue refunds until legally allowed. If you are promised otherwise, you may be getting less of the refund you deserve. If you earned $64,000 or less, don’t pay at all—file for free with NYC Free Tax Prep and get every penny of your refund as soon as possible under the new law.”
In New York City, tax preparers must post their qualifications, fees and charges, and whether 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.
The city offers several ways to file taxes. New Yorkers who earn $64,000 or less may qualify for free tax prep services, including online filing and in-person filing with a certified preparer.
NYC Free Tax Prep services include more than 200 Volunteer Income Tax Assistance/Tax Counseling for the Elderly and AARP Tax-Aide sites citywide, as well as online self-preparation at nyc.gov/taxprep.
At the sites, returns can be prepared in-person by an IRS certified VITA/TCE volunteer preparer or dropped off to be completed by the preparer. At the convenient drop-off sites, filers can drop off their tax documents and return later to pick up the completed return or receive it by email.
EITCs are refundable federal, state and New York City income tax credits available to eligible working individuals and families. Eligible taxpayers can claim the credit when they file their income taxes.