Meeks: In today’s economy, we can’t afford to waste a penny

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Jan. 30 is Earned Income Tax Credit Awareness Day. It is more important now than ever before in these times of economic downturn that tax payers are aware of credits they are qualified to receive. EITC refunds can help individuals in Native communities jumpstart their financial goals and even just make ends meet. At Oweesta we work with Native communities to help them build financial assets, and we’ve seen firsthand the impact EITC refunds can have. Because of this, we are partnering with the Internal Revenue Service to promote awareness of the EITC.

The EITC is a refundable federal income tax credit for low to moderate income working individuals and families. The $38 billion EITC program is the largest federal anti-poverty program in the United States - larger than food stamps and Temporary Assistance for Needy Families combined. It has the potential to bring hundreds of millions of dollars to Native communities annually, but a large portion of that goes unclaimed or is skimmed off by high-cost fees. People who were eligible for an EITC refund within the past three years, but did not claim it, can still file to receive it. The EITC generally has no effect on other forms of public assistance that a person may receive.

If your total household income was less than $41,646 last year, you may be eligible for the EITC. To qualify, you must file a tax return, even if you did not earn enough money to be obligated to file a tax return. Your earned income for the 2008 tax year must be less than:

• $38,646 ($41,646 married filing jointly) with two or more qualifying children;

• $33,995 ($36,995 married filing jointly) with one qualifying child;

• $12,880 ($15,880 married filing jointly) with no qualifying children.

The amount you can receive in your tax refund will vary depending on your income and number of children. The maximum credit this year is $4,824 for a family with two or more qualifying children. If you have one qualifying child, your maximum credit is $2,917. For no qualifying children, you can still receive up to $438.

The “EITC Assistant” on the IRS Web site (www.irs.gov/eitc) can help you determine if you are eligible for the EITC. By answering some questions and providing basic income information to the online assistant, you can determine your correct filing status, determine whether your child(ren) meets the tests for a qualifying child, and estimate the amount of credit you may receive.

If you need assistance with your tax return, take advantage of a free tax preparation site in your area. The IRS’s Volunteer Income Tax Assistance Program offers free tax help to low and moderate income people across the nation. IRS-certified volunteers staff the VITA sites, and most sites also offer electronic filing. To find the VITA site nearest you, call (800) 829-1040 or contact your local or tribal government office.

A VITA site is a more economical option as most commercial tax preparation offices charge high prices and often have hidden fees. If you choose to hire a commercial tax preparation office to assist you in preparing and filing your taxes, be sure to ask what the fees are for each form completed. Oweesta sent a mystery shopper to a few local tax preparation offices in South Dakota to obtain general information on filing and fees. Our findings were astonishing. The offices were not forthcoming with information and would not provide our shoppers with any specific costs unless they committed to having their taxes prepared there. They claimed they could not tell you what the charge would be until after they had provided the services. This should be a warning sign. If the office won’t tell you their fees upfront, walk out the door.
Instant Refunds Cost You Money!

Most paid tax preparation offices encourage instant refunds, or Refund Anticipation Loans. At first glance, a RAL may seem like an opportunity to get your refund immediately. What most tax payers don’t realize is this instant refund comes at a price - steep fees and excessive interest rates of up to 500 percent. Your refund could be quickly reduced by opting for a RAL when filing your taxes. Essentially, a RAL is a high-interest loan tax payers should think twice about. Many people justify using a RAL because they aren’t paying the costs out of pocket. But the fees and interest can add up to $250. Why waste money?

Reservation communities in North and South Dakota use RALs at a higher rate than anywhere in the country. According to 2005 IRS data about 10 percent of taxpayers nationwide used RALs, but the usage around Pine Ridge, Rosebud, Crow Creek and Standing Rock was 57 percent. A further analysis of that data by First Nations Development Institute showed that percentage even higher among EITC filers – an average of 71 percent. If using a paid tax preparer, that average increased to 81 percent. Given these statistics, Oweesta is working with a coalition of Native VITA sites in South Dakota to support outreach and training, to increase volunteer forces and create mobile units that will travel to areas within the reservation to assist with tax preparation. We really appreciate the support of the IRS, Citi Foundation and Black Hills State University with these efforts.

One of the so-called benefits of a RAL is that you don’t have to wait to receive your W-2’s or file your taxes to receive your tax refund. Tax payers can take a recent paystub to their local tax preparation office and walk out the door with a check for their estimated tax refund. Although tax payers are meeting their immediate cash needs by obtaining a RAL, they are incurring more expenses in the long run and weakening their financial condition.

If you have already received a RAL from a commercial tax preparer but have not yet prepared your taxes, there are certain steps you can take to minimize the financial impact of the RAL. Most tax payers are led to believe they must go back to the same office that issued the RAL to have their tax preparation completed, but this is not the case. Instead of going back to the same preparation office, have your taxes prepared free at a VITA site. Once you receive your refund, you can go back to the tax preparation office to repay them like you were repaying any other loan. This will help you to save the preparation and filing fees the tax office would have charged you.

An altogether better option is to avoid a RAL and have your tax refund directly deposited into your bank account. With electronic filing (offered at most VITA sites), your refund is usually deposited within about 10 days and you have the option to specify a portion of your refund be deposited into your checking and the remainder into your savings. This can help you to avoid temptation for short-term purchases and further your long-term financial goals. If you do not have a checking or savings account, you can receive your EITC refund check through the mail. EITC recipients benefit from their refund in a number of ways including using it as supplemental income, paying off debt, or contributing to a savings or investment account.

Several Native communities throughout the country have established financial education programs, provided assistance in opening bank accounts and helped members in planning for their financial futures, all of which make the EITC program more effective. Oweesta and the Native Financial Education Coalition support the Native EITC Network which consists of nearly 200 sites providing EITC outreach and free tax preparation services to Native communities nationwide.

Last year $8 billion was left unclaimed in the EITC program. Help bring a portion of that to your community. Participate in EITC Awareness Day Jan. 30 and help us spread the word. And don’t let your friends and family waste their money.

Elsie Meeks, Lakota, is the president and CEO of First Nations Oweesta Corporation and the chair of the Native Financial Education Coalition. For more information, visit www.oweesta.org/ps/training/eitctoolkit, www.ournativecircle.org, or www.nfec.info.