With public uncertainty about tax reform, the federal government shutdown, and refund delays, the Department of Consumer Affairs (DCA) warns New Yorkers about predatory tax preparer tactics, in particular “express refund advances” or “refund transfers.” These tactics – which include offering receiving refund advances in the form of an anticipation check or a gift card – can entice filers who look forward to receiving their refunds sooner.
Refund Anticipation Loans (RALs), or “express refund advances,” are advertised as “interest free” and typically offer a portion of a filer’s expected refund. Although RALs now don’t include fees or interest, unscrupulous preparers sometimes charge borrowers higher fees.
In the case of Refund Anticipation Checks (RACs), or “refund transfers,” consumers opt to have their tax preparation fees deducted directly from their refund for an additional fee. Depending on the product, paid preparers may help the filer open a temporary bank account, which subjects the consumer to transfer fees and other product costs that add up. A March 2016 National Consumer Law Center report noted that RACs generally cost $25 to $60 for the federal refund. Although RACs are not typically considered loans, it should be noted that if a taxpayer pays $35 to defer payment of a $350 tax preparation fee for three weeks, the interest rate would be equivalent to 174 percent.
Although a consumer’s experience is slightly different depending on the type of product they use, at the end of the day, the results are the same: consumers have less of their hard-earned refund in their pocket and pay more to get their refund. DCA has received reports of fees as high as $750. Due to new tax law, there is a new standard and easy form that replaces the 1040, 1040A and 1040EZ. The form is shorter but now includes six new schedules and many paid preparers will likely charge per form. Be sure to get a quote in writing before agreeing to pay for the service and double check the final cost against what you were quoted.
Despite the government shutdown, the Internal Revenue Service (IRS) has confirmed that it will begin processing returns on January 28 and will provide refunds as scheduled. Also, due to federal law, the IRS is required to hold refunds until February 15, 2019 for filers who claim the Earned Income Tax Credit (EITC) or the Additional Children Tax Credit (ACTC). Most refunds will then be issued in approximately 21 days from mid-February. As a result, paid preparers are marketing “express refund advances” or “refund transfers” that result in a smaller refund, or unforeseen fees or interest.
Consumers should ask paid preparers for a Consumers’ Bill of Rights Regarding Tax Preparers (also available in Arabic, Bengali, Chinese, French, Haitian Creole, Korean, Polish, Russian, Spanish, and Urdu) and read it thoroughly before having their taxes prepared. Also, be on alert for preparers that overcharge, charge hidden fees, or file your return without permission. Consumers can file a complaint about tax preparers with DCA by calling 311 or visiting nyc.gov/dca.
DCA also encourages any New Yorkers who earned $66,000 or less to take advantage of the City’s free tax preparation services, which will be available in about a week. Services provided by NYC Free Tax Prep include free, in-person preparation at Volunteer Income Tax Assistance (VITA) and AARP Tax-Aide sites and “drop-off” services where an IRS certified VITA/TCE volunteer preparer completes the return offsite, as well as online preparation. Check nyc.gov/taxprep or contact 311 for more information.
The NYC Department of Consumer Affairs (DCA) protects and enhances the daily economic lives of New Yorkers to create thriving communities. DCA licenses more than 81,000 businesses in more than 50 industries and enforces key consumer protection, licensing, and workplace laws that apply to countless more. By supporting businesses through equitable enforcement and access to resources and, by helping to resolve complaints, DCA protects the marketplace from predatory practices and strives to create a culture of compliance. Through its community outreach and the work of its offices of Financial Empowerment and Labor Policy & Standards, DCA empowers consumers and working families by providing the tools and resources they need to be educated consumers and to achieve financial health and work-life balance. DCA also conducts research and advocates for public policy that furthers its work to support New York City’s communities. For more information about DCA and its work, call 311 or visit DCA at nyc.gov/dca or on its social media sites, Twitter, Facebook, Instagram and YouTube.