Give me Liberty or give me my full refund
Taxpayers seeking quick cash may end up trading their big check for a high-interest loan
Last week, my younger son lost two teeth in the same day. We all know what that means: he was in for windfall from the Tooth Fairy. At a dollar per tooth, he was due two bucks minimum. He was eager to collect the cash, but he knew he had to follow a certain onerous protocol — put the two lateral incisors under his pillow, go to bed, and sleep all night. That kind of patience, for an 8-year-old, is tough.
So I came up with a plan that would give him the cash faster: During dinner, I
gave him $1.50, which made him happy. After he went to bed, I waited up until
the Tooth Fairy came and went, then snuck the money she left — two crisp new dollar bills — out from under his pillow while he slept. I netted 50 cents on the deal, and my
son never really knew what hit him.
See, I got this idea from those green toga guys. You know — the ones waving at you from the curb in front of Liberty Tax Service stores? They and their counterparts in the little kiosks at Wal-Mart or in strip-mall storefronts next to the chicken wings joint, offer the exact same kind of deal, if you replace the Tooth Fairy in my scenario with Uncle Sam.
Of course, with taxes, the process is more complicated (you can’t just put your W-2s under your pillow) and the wait a bit longer than
overnight. According to the Internal Revenue Service, it’s six to 15 days if you file your taxes electronically; maybe a month if you
file paper returns by mail.
To find out how these places work, I asked Alexander Holland to try Liberty Tax Service for me. Alex is 22, a Lincoln Land Community College graduate, and the kind of gunner who always has a day job and a half, plus a night gig playing bass in a band called Bük. This year is his first time filing solo, so he wanted to make sure he did everything right.
He made an appointment at the Liberty store on Wabash, and sat down with a “nice lady” named Debbie. She couldn’t tell him how much her services would cost until she had actually typed in all the numbers. As I later learned from store manager Chris Beckett, Liberty’s fees are based on the number and types of forms a taxpayer requires. These fees are calculated by the computer; even Beckett can’t see the fee for a form.
Alex had five W-2’s (Starbucks, Journeys, The Gap, Verizon, and a bank) plus 1040s for his college
tuition. As it turned out, having Liberty do his taxes would cost him $263, or,
with Liberty’s current 30-percent-off special, $184.
Debbie gave Alex six choices, including the option to do his own taxes for free on Liberty’s Web site, libertytax.com, on his home computer, and wait up to two weeks for his refund. At the other end of the spectrum was the option to get his refund money within 48 hours from the Liberty store.
These fast-cash deals are known in the industry as RALs, or Refund Anticipation Loans, and they appear almost irresistible to the very folks who need to horde their pennies: taxpayers who qualify for the Earned Income Tax Credit, or EITC. This bracket includes families with a household income around $40,000 or lower, or single adults with an income of below $12,880. According to a 2006 study by the Chicago-based Woodstock Institute, 46 percent of Springfield taxpayers who qualified for the EITC in 2002 opted for an RAL.
Liberty and other similar tax-preparers like H&R Block and Jackson Hewitt don’t offer these sure-fire loans out of the goodness of their hearts. They tack on a “finance charge” that, extrapolated as interest, would amount to an annual rate (APR) ranging into triple digits. At Liberty, for example, a $1,500 RAL costs the taxpayer $37.50, and a $3,000 RAL costs $75. Woodstock’s study shows that in 2002, Springfield’s poorest taxpayers paid more than $1.5 million in RAL finance fees.
And that might not be the worst of it. As Beckett told me, Liberty’s tax prep fees are based on the number and types of forms the taxpayer requires. Alex, whose $23,000 income exceeded EITC limits for a singleton, doesn’t qualify for the EITC. But another friend of mine whose return included the EITC form was quoted a $330 tax prep fee ($100 higher than Alex), even though she had fewer W-2’s than Alex and no 1040s.
Alex turned down the RAL, realizing he could probably file his taxes himself,
wait a couple of weeks and get his full refund. But not everybody thinks like
Alex. While he was sitting in the Liberty store, he saw two other taxpayers
come in and pick up their checks. He recognized one of them: “She was my lunch lady from junior high,” he says. “She had just moved here from [another country] and didn’t speak English very well.”
There were other options for both Alex and his lunch lady. If a taxpayer has simple forms and feels confident about filing, but perhaps just doesn’t have a home computer, the Lincoln Library has two terminals each available for as long as two hours. The taxpayer would need to have a library card or guest pass, and get clearance from the reference desk. The use of the computer terminals is free.
Similarly, the Internal Revenue Service has public computer kiosks and
face-to-face help available at their offices, 3101 Constitution Drive.
For truly personalized service, the AARP helps taxpayers of all ages and
reasonable income brackets file electronically. Their volunteer tax preparers
are trained and tested, and will not accept a fee. “We don’t charge anybody anything,” says longtime volunteer Will Wietfeldt. “Some people try to give us something. Once in a while, somebody will leave us a
bag of candy.”
And by the way, I didn’t really take my son’s money. I meant to, but I dozed off before the Tooth Fairy arrived.