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Tax Refund Loans Cost Low-incomeWorkers Cost $900 Million in Unnecessary, Unjust Fees |
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WASHINGTON, D.C. - Cashing in on the promise of a quick fix, millions of low-income American workers paid more than $900 million in unnecessary fees and excessive interest when they filed their taxes in 2004 to expedite collection of their tax refunds. An analysis of IRS data by the Children's Defense Fund (CDF) found that most Refund Anticipation Loan (RAL) customers were low-income taxpayers who claimed the Earned Income Tax Credit (EITC), a refundable credit for low-wage earners, even though they only make up 17 percent of all taxpayers. In Mississippi, RAL fees exceeded $25 million; in South Carolina over $26 million; in Tennessee more than $29.4 million was lost to RALs; in Ohio over $35 million. In reducing the value of the refund taxpayers receive, RALs undermine the very purpose of the EITC, which is to help lift low-income families out of poverty. Last year, working in conjunction with the Internal Revenue Service and hundreds of faith and community groups across the country, CDF and coalition partners helped raise awareness and set up free tax preparation services to allow families to claim - and keep - more than $105 million in tax refunds.
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