IRS Ruling means Fewer Tax Refund Anticipation Loans in 2011!
IRS Ruling on Refund Anticipation Loans will impact tax filers in 2011!
H&R Block customers who relied on short-term loans backed by their expected tax refunds will not have that option this year, since Block’s banking partner was forced by federal regulators to stop offering the loans.
The nation’s largest tax preparation company, H&R Block could lose customers to competitors still offering the loans because it has virtually no time to find a new funding partner before tax season starts in January.
RAL (refund anticipation loans) costs can amount to as much as a 500 percent interest rate. “The truth is that RALs are such a bad idea that tax preparers and lenders generally need to lie about them in order to sell them. H&R Block extended 2.1 million RALs in 2010, each with at an average amount of $3,000 issued for 10 to 11 days.
Through the end of June, 82 percent of RAL recipients in 2010 -- based on 2009 tax returns -- had adjusted gross incomes of $35,000 or less, according to the IRS. Tax filers paid $738 million from 8.4 million American taxpayers in 2008 plus $68 million more in add-on fees, from $34 to $130, according to a report by the Consumer Federation of America and the National Consumer Law Center.
People who seek such advances are often the "working poor the unemployed, or others who experienced changes to their marital, financial or parental status and who are strapped for cash.
Consumer groups hailed the IRS move in August 2010, as a step toward ending a predatory-lending practice, national chains such as H&R Block and Jackson Hewitt won't easily exit the lucrative business and say the effort may even backfire with higher fees, hurting consumers.
In the past tax preparers claimed they could set up the bank accounts for tax filers, if the IRS would give them debt indicators. However, with more than 70 percent (95 million) of all returns being filed electronically there is no longer the need to provide debt information to tax preparers.
John Hewitt of Jackson Hewitt Tax Service Inc. said that a portion of the 8 million to 9 million RAL customers will no longer qualify for loans without the government data available. Without the so-called "debt indications" from government data, tax preparers and banks will find it more difficult to front controversial loans known as refund-anticipation loans, or RALs, which are secured by a filer's expected tax refund.Filers who do qualify will face steeper fees; some tax preparers will charge $100 to $110 more, or about a 60% jump, in RAL prices. It will likely become harder for tax filers to receive credit approval and it will cost more. The amount of credit available may be limited according to some national tax preparers.
Earned Income Tax Credit
Tax filers can get their direct deposit returns from the IRS within 10 business days. But forty percent of RAL recipients don't have bank accounts, which further complicates Consumer Advocate complaints against RAL providers.The IRS estimates that 20 to 25 percent of qualifying workers miss out on thousands of dollars every year because they fail to claim their EITC. The IRS is trying to reach potentially qualifying taxpayers to educate them about the credit and motivate them to file and claim it. This includes workers who are:
living in rural areas,
receiving certain disability pensions or have children with disabilities,
without a qualifying child
IRS Free Tax Preparation: Volunteer Income Tax Assistance (VITA)
The VITA program offers free tax help to individuals who cannot afford professional assistance. Volunteers help prepare basic tax returns for taxpayers with special needs, including individuals with disabilities, non-English speaking persons and elderly taxpayers.