For Many Low-Income Families, Tax Season Starts Now | KERA News

For Many Low-Income Families, Tax Season Starts Now

Dec 29, 2015

Most people won’t think about income taxes for another couple of months. But low-income families are already counting the days until they can file. 

That’s because many will qualify for tax credits that may mean big refunds.

Maximizing that money is a good thing, but tax experts warn against taking out loans marketed as “early refunds.”

For most people, tax time is straightforward. When your W2 or 1099 arrives, you gather all your documents and get started. Some low-income folks don’t want to wait that long.

Rushing Toward A Refund

“There are people who present themselves as tax preparers who will file taxes for individuals using their last pay stub of the year rather than waiting for the W2 form," says Susan Hoff with the United Way in Dallas. "That’s really a big no-no.”

Hoff says using a pay stub to file taxes is dangerous for a number of reasons. The tax preparation costs money, and there are fees and interest on that “early refund,” which is basically a loan. And a pay stub isn’t an official tax form, which means the refund amount is simply an educated estimate.

“Waiting for that W2 form is critical because there’s a large margin for error for somebody to just be basically guessing based on one month’s paycheck," Hoff says.

Help Is Out There

Hoff says she understands why low-income families want their refunds quickly. She also knows how much money those families could save by waiting a few weeks and taking advantage of free tax prep.

The VITA program which does in-person tax prep and stands for Volunteer Income Tax Assistance is available in Dallas, Tarrant and Denton counties to any family making $54,000 a year or less. All the tax preparers are IRS-certified. If your household makes $62,000 or less, you could qualify to file your taxes for free online through VITA.

Find your nearest VITA center here.

Eating Into Your Refund

Pennie Clayton works with the United Way in Tarrant County as volunteer coordinator for VITA.

“Since I’ve been a part of this program, the largest refund that I’ve seen come back has been like $8,500," Clayton says.

That kind of money is life-changing for families on the financial edge.

Clayton recommends dividing that refund into three chunks.

“It’s 30 percent to pay off debt, 30 percent to save and 40 percent to do whatever it is you would like to do with your refund," she says.

That's much easier to do when folks aren’t paying for tax preparation. Clayton says some people just don’t know free help is out there. Take one woman who called VITA just a few weeks ago.

“She’s a single mom, she has a special-needs child and she barely makes $19,000 a year," Clayton says. "She said they charged her $800 to do her return, which almost blew me out of the water.”

Tax Prep Red Flags

Using a paid tax preparation service is something many people choose to do.

Hoff and Clayton say watch out for these red flags:

1.) Signing a tax form that isn't filled out: If your signature is on a page with empty boxes, somebody else can pencil in the blanks. Make sure all your signed tax forms are filled out with your correct information.

2.) Using a pay stub or paycheck to file: A lot of people jump the gun by filing their taxes before their W2 form comes in the mail. If you use your pay stub to estimate a refund, the amount might be incorrect. And because the tax preparer is technically fronting you the refund, in the style of a loan, you'll owe fees and interest too.

3.) Routing your refund through your tax preparer: Experts say tax refunds should always come straight to the filer being refunded, or straight to that person's bank account. Be on alert if your preparer offers to loan you the refund and collect the IRS refund directly.