Keep your money, avoid costly tax refund loans, officials say

Carson City's low-income residents claimed $6.2 million last year in a tax credit that is an easy target for predatory lenders.

A single mother's $2,700 earned-income tax refund can be stripped by $400 by a pay-day-loan lender or tax preparer offering a refund-anticipation loan.

A top tax official recommends that families file electronically now and wait about two weeks for the credit to be direct deposited into their account, rather than pay the hefty interest rate on a refund-anticipation loan.

"I encourage individuals and families to work through volunteer sites, work through IRS.gov, get that refund properly," IRS Commissioner Mark W. Everson said Thursday. "I discourage individuals from taking out those loans."

The National Consumer Law Center estimates that Americans spent $1 billion last year on these high-cost loans secured by the taxpayer's expected refund. The loans last up to two weeks until the IRS refund repays the loan.

The IRS does not have jurisdiction over businesses that sell refund- anticipation loans. Some states limit the interest rate these businesses can charge. Nevada has no usury law, which means there is no cap on loan interest rates. The state Legislature may take up the issue this session.

"People don't realize they pay almost 200 percent interest on those loans, but if they come to us they get the service and the same electronic filing for free and their check in seven to 10 days," said Gil Yanuck, assistant state director for the AARP's Tax-Aide program.

The program helps area residents file their taxes and there is no income restriction.

Rosa Garza, a credit specialist with Citizens for Affordable Homes in Carson City, said these predatory loans are a big problem with anybody who needs money fast.

"It's really common," she said. "You want (the refund) and you want it now. But the price you need to get that loan is way over their head. It shouldn't be that expensive because the money is guaranteed from a government agency."

Garza, who is also involved with the Hispanic Chamber of Commerce, said this is a touchy situation because the businesses are legal and fill a niche in the market.

Workers who are denied by the bank and have no account use these businesses to cash their paychecks, she said.

• Contact reporter Becky Bosshart at bbosshart@nevadaappeal.com or 881-1212.

Do you qualify for a tax credit?

• The earned-income tax credit provides a refund for lower-income families.

• Those with limited-English skills, rural residents and nontraditional families, such as a grandparent raising a grandchild, are often unaware they can claim this credit.

• For the 2006 tax year, the maximum credit is $4,536 for a family with two or more children; $2,747 for a family with one child and $412 for no children.

• The income limits for a family with two or more children: $36,348 or $38,348 if married filing jointly. For families with one child: $32,001 or $34,001 if married filing jointly. Families with no children: $12,120 or $14,120 if married filing jointly. Investment income must be $2,800 or less. Children must meet certain relationship and residency requirements.

Free tax assistance is available at:

• The Carson City Senior Center, 911 Beverly Dr., 12:30- 5 p.m. Monday and Wednesday. To make an appointment call 883-0703.

• Friends in Service Helping, 138 E. Long St., 10 a.m.-1 p.m. Saturday. To make an appointment call 882-8448.

• Also visit IRS.gov or call 211 for income tax preparation sites.

Source: IRS