Arkansas Advocates for Children and Family released a report today that said ignorance of the federal earned income tax credit and triple-digit interest rapid refunds charged by tax return preparers are costing the state’s low income population $200 million a year.
AACF says one in four eligible taxpayers aren’t claiming the EITC tax credit, so they’re losing between $88.5 million and $110 million a year.
Rapid refund (RALS) loans – which were initiated before electronic filing made for speedy refunds – are instant loans tax preparers give tax filers based on expected refunds. AACF says low-income filers paid $21.6 million on these loans in 2006 and another $77 million in tax prep fees.
These loans cost filers an average $100 to get money they’d receive in days anyway by filing tax returns electronically. These loans take advantagthe poorest Arkansans: Three of four EITC tax filers who used private tax preparation firms were sold the rapid refunds.
Low income tax filers need not pay tax prep fees or take out such loans. The AACF says
the IRS free tax preparation sites and Volunteer Income Tax Assistant (VITA) sites across Arkansas could be saving the state’s poorest millions. AACF recommends expanding the number of VITA sites and passage of a new law that would end deceptive RALS loan sales.