Avoid Refund Loan - Ted Talbott

EDITORIAL: Wisconsin State Journal, The (KRT) via NewsEdge Corporation : Jan. 11 2006

Would you pay a 521-percent annual interest rate, or fees that equal that much,
to borrow money that belongs to you?

That's what many people do when they get a loan from their tax preparer in anticipation of a tax refund. They start out with hopes for quick cash and end up losing more than 10 percent of their refund in fees.

About 114,000 Wisconsin taxpayers paid about $28.5 million in tax refund loans and associated fees in 2003, the most recent year of data. These fees went to preparers, such as H&R Block, who aggressively promote refund loans during the tax filing season.

They offer a tax filer money based on the anticipated tax refund. A bank makes the payment through the tax preparer. The money is actually a loan, repaid by the refund.

In December, H&R Block reached a $62.5 million settlement with an estimated 8 million customers in more than two dozen states, including Wisconsin, over refund-anticipation loans. The company admitted no wrongdoing but agreed to pay back customers. Yet H&R Block and others continue to offer these loans, mostly to the working poor who are eligible for the earned income tax credit.

In Wisconsin, 22 percent of the people who claim the earned income tax credit got their refunds through these loans in 2003. More than 61,000 people paid an average fee of $130 to get their loans.

That money, $8 million in credits that people should have received to fight poverty and strengthen the economy, instead boosted the profits of tax preparers.

This year, more people should join the increasing number of taxpayers who are turning away from these loans. There's no reason to fall prey to greedy companies.

With electronic filing, you can get a refund in as little as five days from most states and 10 days from the IRS. The refund is deposited directly to a checking or savings account. Tax filers who don't have an account can open one for free at many banks and credit unions.

Taxfilers also can get help with their returns at any of several free tax preparation sites, called Volunteer Income Tax Assistance sites. Some sites will even file the return electronically for free.

This tax season, keep your refund, don't give it away to your tax preparer.

<<Wisconsin State Journal, The (KRT) -- 01/16/06>>