In the past tax season around 10% of Americans will let someone borrow them their own money through tax refund loans. 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 to 14 days they are costing individuals hundreds of dollars in some cases.
Tax Refund Loans: Are They Predatory?
Overall this lending practice is estimated to cost Americans as a whole about 500 million dollars a year. That number is dwarfed when compared to other lending and fee based finance charges imposed by banks. Look no farther than excessively high interest consumer credit cards with staggering late fees and over limit charges. What about the banking institutions with their sky high account overdrawn fees, per item check overdraft charges, and additional daily fees for each check that remains unfunded. Often the daily penalty fee is more than the value of the check, thanks to the unfair practice of clearing the largest checks first even though they came in last. That is more than 100% Per Day. The underhanded scheme causes a larger number of smaller checks to bounce. This predatory practice dramatically increases penalties and fees on many of those who can least afford it.
Unfortunately poor people tend to be affected the most by tax refund loans 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 about 55% of tax refund 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 the 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 so much of their tax refund to get the money in 1-2 days instead of only 10 to 14 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. What if, and some taxpayers do, need their tax refund loans right now to stop the out of control charges being levied by their bank because they made the mistake of over-drafting their checking account. These fees accumulate rapidly and are nearly impossible to stop when you are short of cash.
Education And Tax Refund Loans
People need to be educated that they don’t have to give up their money in the first place through Tax Refund Loans. 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.
Breaking The Cycle Of Tax Refund Loans
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 ,000. VITA can be reached at 800-829-1040 with sites around the country. Keep what is yours – don’t let the tax companies keep part of your hard-earned income. Explore your options and be patient- it might save you a couple hundred dollars or more on tax refund loans.
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Filed Under: Tax Refund Loans