Source: Pensacola News Journal
December 31, 2016
By Andrea Krieger, United Way of Escambia County
Did you know much-needed and highly anticipated tax refunds will be delayed this year? In a Tax Policy Center report published Dec. 7, 99 percent of those interviewed were unaware of impending delays that are a result of a new law intended to reduce fraud.
The Protecting Americans from Tax Hikes Act of 2015 (PATH) requires the Internal Revenue Service to delay tax refunds until Feb. 15 for those who claim earned income tax credits (EITC) or additional child tax credits (ACTC). Unfortunately, many of those impacted are among vulnerable families who use EITC and ACTC to pay down debts or purchase necessities like food and shelter. According to taxpayers interviewed for the report, a delay of one week could have negative impacts and a delay of two to four weeks could have extremely negative impacts on their fragile finances.
At United Way, volunteers preparing to serve local families through free tax preparation programs are being informed of this delay and possible impacts upon local residents who may turn to high-interest loan programs to offset the financial hardship caused by delayed tax refunds.
As the Tax Policy Center report clearly demonstrates, these concerns are valid. Data reviewed from multiple resources indicate that those most impacted by the PATH Act can least afford to wait for the anticipated refund. Very low income taxpayers and low- to moderate-income families with children will be the most impacted by the delay of refunds that contain EITC and ACTC. United Way volunteers have traditionally helped many early filers receive their return prior to Feb. 15 (one-third of all taxpayers) and receive their tax credits. They have heard the stories of how the refund will be used to help pay off debt, pay for housing, purchase food and create a tiny savings cushion.
For many of those served through free tax programs, there is a need for a timely refund (especially among early filers). The Tax Policy Center (TPC) shares that nearly four in five who claim EITC and ACTC also report financial hardship within the past year, and a startling 40 percent have used alternative financial services within the last six months. Payday lenders and others offer alternative services and high-cost lending products that saddle families with interest they have a difficult time paying. There is little cushion to meet more than basic needs; and, the median in liquid assets available to these families is $400. The TPC’s paper adds “fewer than half of these families reported they could access $2,000 in an emergency.”
Statistics on IRS refunds demonstrate that for households receiving EITC and ACTC, refunds represent a substantial portion of annual income. Delayed tax refunds budgeted for receipt in late January and early February will likely encourage use of high-cost financial products. In 2008 returns, one in six filers expecting a refund used services that offered refund anticipation loans (RALs) or refund anticipation checks (RACs). These high-cost products charge accelerated interest rates and excessive fees that consume large portions of anticipated refunds. Unfortunately, pressures created by financial instability lead many low- and moderate-income families to pursue earlier returns that sacrifice a portion of the refund. United Way volunteers start training in December to ensure that free tax prep sites and the online MyFreeTaxes portal are early options that reduce the 45 percent of taxpayers who use RALs and RACs to get early refunds. The substantial cost of these products to consumers was $1.573 million from 2006-2007, and led to a push for United Way to lead free tax efforts in 2007. We wanted to reduce the unbearable cost to taxpayers who struggle to meet basic needs.
The effort to reduce fraud is important, but the potential consequences of refund delays exceed the benefit. The TPC anticipates more workers without children will simply forgo tax credits they are entitled to in order to receive an earlier refund. These workers represented 25 percent of EITC recipients in 2014. While they only receive about 3 percent of the EITC that is available, other credits that offset college and over-withholding costs can create significant refunds that they could lose.
Many of our community’s struggling households are not expecting to wait until Feb. 15 for their refund. They are likely unprepared for the new law that prevents the early filing they are counting on. The potential increase in the use of high-cost financial products will devastate the financial stability a full refund can help these families create. United Way encourages readers to share their knowledge of this new law and to discourage friends and family members from using alternative financial products or refund processors to receive earlier refunds. Using free tax programs staffed with certified and trained volunteers and waiting for the Feb. 15 file date are a better option for struggling families.
To find a free tax preparation site near you, dial 2-1-1. For questions regarding how you can volunteer or to find more information about available tax resources, call 434-3157 or visit www.unitedwayescambia.org/taxhelp today.
Delayed tax refunds
The Protecting Americans from Tax Hikes Act of 2015 requires the IRS to delay tax refunds for taxpayers who claim an earned income tax credit or additional child tax credit on their returns until at least Feb. 15. The delay could help the IRS better check claims for these credits. But this new requirement will delay refunds only for certain low-income tax filers, in particular low-income families with children. Many of these families file their returns early and use refunds quickly to pay down debt or for spending on necessities. Delaying refunds will likely lead to additional financial hardships for some of these families, who in previous years had received and used their refunds before Feb. 15. To read the full paper Delaying Tax Refunds for Earned Income Tax Credit and Additional Child Tax Credit Claimants published Dec. 7 by Elaine Maag, Stephen Roll, and Jane Oliphant, visit www.taxpolicycenter.org/publications/delaying-tax-refunds-earned-income-tax-credit-and-additional-child-tax-credit-claimants/full.