This tax season 10% of Americans will let someone borrow them their own money through a refund anticipation loan. Rates might be as high as 744%. A rapid refund is just your income tax refund given to you on the spot by your tax preparation service- usually within 1-2 days. Rather than waiting for your tax return to come through the mail or via direct deposit directly from the government some people are choosing to get money in their pockets immediately at a great expense to themselves. Despite the length of the loan lasting only about 10 days they are costing individuals hundreds of dollars in some cases.
Predatory Lending
Overall this predatory lending practice is estimated to cost Americans as a whole about 500 million dollars a year. Unfortunately poor people tend to be affected the most because they have a greater need to get their money as fast as they can. Those targeted most tend to be recipients of EITC, the Earned Income Tax Credit. They recently accounted for 55% or refund anticipation loans. The program, formed in 1975 to help low wage workers is being undermined by tax preparation services that are eating away at these refunds. Refunds that are being awarded based on the EITC cornerstone that qualifiers for EITC get most of the federal taxes refunded in an attempt to relieve poverty for hard working people.
It seems silly to many of us that someone would pay as much as $218 out of a $760 dollar tax refund to get their money in 1-2 days instead of only 10 days when filing electronically, directly with the IRS. But many of us don't understand the desperation so many people feel when they are trying to make ends meet on a low income.
Tax Education
People need to be educated that they don't have to give up their money in the first place. Employers will let workers change their W 4 forms to adjust their withholding to more closely match their tax responsibility. That way, people aren't paying out their wages in taxes throughout the year unnecessarily in the first place. People also need to be educated that electronic filing is free for many people now and with direct deposit it only takes about 10 days to get a refund.
Tax Help
If your financial life is difficult its important to weigh the benefits and drawbacks of getting money fast vs. getting more money by waiting only 8-9 more days. Free filing is available to those who qualify using the criteria that can be found at
www.irs.gov. Assistance from the Volunteer Income Tax Assistance program is available for people with incomes less than $35,000. VITA can be reached at 800-829-1040 with sites around the country. Keep what is yours - don't let H&R Block or Jackson Hewitt keep part of your hard-earned income. Explore your options and be patient- it might save you a couple hundred dollars or more.
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