Fine print tells the evil story

Tax season is here, and attorneys general across the nation are warning consumers to beware the pitfalls of "refund anticipation loans," or RALs.

Refund Anticipation Loans: Each year 10 million Americans, eager to get their tax refunds, sign up for RALs that promise short-term loans backed by and repaid from a pending federal tax refund. RALs provide quick cash, but their interest rates can reach 100 percent or more. RALs diminished the refunds of 8.67 million American taxpayers in 2007, costing them $833 million in loan fees and $68 million in other fees.

The Center for Responsible Lending Web site — tulsaworld.com/PredatoryLending — says RALs are loans offered at annual interest rates of up to 700 percent. Also, they speed up the refund process by only a week, compared to what consumers can expect by filing online and having their refunds direct-deposited into their bank accounts. The center is a nonprofit, nonpartisan research and policy organization dedicated to protecting home ownership and family wealth by working to eliminate abusive financial practices such as predatory lending.

Earned Income Tax Credit: RALs prey on cash-strapped working families, especially those who qualify for the Earned Income Tax Credit. In addition to the dollars lost because families don't know about the EITC or can't get the help they need to file a tax return, these families lose even more when they use RALs.

Research by the General Accounting Office and IRS indicates that 15 percent to 25 percent of households that quality for the EITC do not claim this credit. Using the most conservative of these figures, more than 3.8 million households nationwide missed out on the EITC dollars they were entitled to. See if you qualify for the EITC at tulsaworld.com/EITCclueless.

RALs rile AG: Oklahoma Attorney General Drew Edmondson annually warns Oklahoma taxpayers about applying for RALs. He says consumers considering these loans should carefully review their options before signing up for such a loan, as it could leave them with empty pockets.

IRS e-file: The electronic filing system available to taxpayers makes RALs unnecessary and costly. Filing your taxes electronically through IRS e-file, as the Internal Revenue Service annually urges us to do, will have your refund to your bank account within a few of days of the refund being accepted by the IRS.

With RALs, there is always the risk your tax return will be rejected and you'll be stuck paying back the loan at high finance charges — but without getting the refund the loan was based on.

Fine print: Edmondson encourages consumers who decide to get an RAL to carefully read the fine print before signing the loan documents.

They should contain a schedule of all charges and fees, a listing of all charges for electronic filing, the length of time by which the loan money will be received, who is responsible for repaying the loan and fees if the tax refund is less than expected, the annual percentage rate, loan fees and maturity date.

For fast tax returns, e-file or Free File

Free File: You may qualify to file your taxes electronically for free if you make $56,000 or less a year. Free File is a popular IRS program. See FreeFile at tulsaworld.com/FreeFile.

e-File: If not, you can still e-file your taxes for a small fee. Find out which software programs are e-file authorized. See "Individual e-file electronic tax filing program overview" at tulsaworld.com/e-File .

Step 1: Get all your tax information together. You'll save time and won't have to stop in the middle of preparing your current year tax return to find a missing document. You'll need Social Security numbers for yourself, your spouse and any dependents and Forms W-2 from all employers you and your spouse worked for in 2008.

Needed documents: You'll need Forms 1099 for Dividends, Retirement or other income or any Form 1099 with Income Tax Withholding. You'll need receipts for expenses for Itemized Deductions (Schedule A) and receipts and records for other income or expenses. Have your bank account numbers handy (to authorize direct-deposit for a fast refund or to pay electronically if your don't get a refund). You need your prior year's "adjusted gross income" amount or prior year PIN if using a "self PIN" as your signature.

Step 2: Choose the method of e-filing that works for you: using a tax professional who can e-file your return for you (see tulsaworld.com/ProfessionalE-Filer ), using your personal computer to file it or using FreeFile, if you qualify.

Step 3: E-file it! If using a tax preparer, be sure to take all your information with you, and don't forget to ask for IRS e-file. Use the IRS preparer locator service at tulsaworld.com/PreparerLocator to find the "authorized IRS e-file provider" nearest you. If using your personal computer to file your taxes online, just answer the simple questions in your tax preparation software and it will do the rest for you. For faster refunds, or to pay when YOU want to, have your bank account number handy.

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Fine print tells the evil story

Beware of 'refund anticipation loans'

Tax season is here, and attorneys general across the nation are warning consumers to beware the pitfalls of "refund anticipation loans," or RALs.

For fast tax returns, e-file or Free File

Consumer Page topics

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