This is a challenging time for many low-wage and moderate-income workers right now.
Fortunately, there are some tax credits and deductions provided by both the state and federal government that can put more money into families’ pockets. They are described in the latest edition of the Michigan League for Human Services’ annual Money Back in Michigan packet, released today.
This packet is a useful tool for any organization that serves low-income individuals and families. If you or someone you know works in such an organization, feel free to print out, copy and distribute as many copies of this packet as you like!
The largest tax credit is, of course, the federal Earned Income Tax Credit, which will give workers raising children a tax credit of up to several thousand dollars. There is also the Michigan Earned Income Tax Credit, which gives filers a state tax credit equal to 20 percent of the amount they claim for the federal credit. Several other credits, state and federal, are explained in the packet.
Unfortunately, however, the tax preparation industry lures many tax filers to their offices with refund anticipation loans. While these loans promise to give the tax credit refunds within a couple of days, the loan fees can take a significant portion of a filer’s refund.
The National Consumer Law Center has found that these loan fees generally range from $34 to $130, and that add-on fees charged by some companies can range from $25 to several hundred dollars.
In other words, public money that is intended to help struggling families and individuals ends up going into the accounts of large national corporations such as H & R Block, Jackson-Hewitt, and Liberty Tax (as well as independent tax preparation businesses). In the 2008 filing season, 461,368 filers (65 percent) claiming the federal earned income credit used a paid preparer.
Fortunately, there are ways that tax filers can get their refunds both quickly and free. One way is to file electronically using the free program I-CAN E-File, available to most tax filers. Those who have lived in Michigan for the entire year can use this program to do their Michigan taxes as well as their federal taxes. For those who need assistance, there are Volunteer Income Tax Assistance (VITA) sites around the state that provide free tax assistance by IRS-trained volunteers. Because most VITA sites prepare the taxes electronically rather than using paper forms, the refund checks or direct deposits usually take less time to come to the filer than if the filer sends a paper form him/herself.
In the past year, stricter disclosure rules for refund anticipation loans and other tax services were signed into law by the governor. Also, thanks to state and local level advocacy and outreach efforts, the number of people who are utilizing free electronic filing and tax services has increased steadily in the past several years. These are good trends.
— Peter Ruark