Another Record-Breaking Year for Tax Refunds

This year, United Way’s Earn It! Keep It! Save It! saw another increase in the amount of money it returned to the community. This year, more than $47 million dollars was returned to hard-working people across seven Bay Area counties. The program, which is in its seventh year, provides free tax assistance for low- to moderate-income families and individuals, helping them avoid commercial tax preparation fees and claim tax credits, such as the federal Earned Income Tax Credit (EITC).

With the tax season behind us, we at United Way offer our sincerest gratitude for the hard work and commitment of our volunteers, partners and funders. Your collective energy helped thousands of Bay Area residents get the refunds they deserve.

Earn It! Keep It! Save It! Co-Director Vanessa Muniz spoke with us about the program’s success, especially in deterring filers from costly “rapid refund” loans.

United Way: What accounts for the $11.4 million increase in total refunds?

Vanessa: This year we did a much better job of reaching our target population – households earning less than $45,000 a year. As a result, we had a large increase in filers who qualified for federal tax credits, which led to the increase of total refunds.

The economic downturn also played a huge role:  people just couldn’t afford to go to paid preparers, so clients were looking for cheaper alternatives.

Finally, and maybe most importantly, I think the reputation of the program  is spreading around Bay Area communities, which is a great thing!  Unfortunately, our program only is servicing about 3-5% of all eligible tax filers in the Bay Area.  Most still use paid preparers, and a large percentage of those tax filers are taking out high-cost, predatory loans called “Refund Anticipation Loans” or “Rapid Refunds.”

United Way: What is the problem with Rapid Refunds?

Vanessa: Rapid Refunds or Refund Anticipation Loans (RALs) are heavily promoted by many commercial tax preparers as a way to get your tax refund quickly. However, they really are just high-priced loans. What tax-preparation companies don’t tell their customers – except in the fine print – is that the loans can cost as much as one third of their total refund in interest and fees. Worse yet, they can force a borrower into greater debt by over-estimating a family’s refund, so that they owe the tax preparation companies a large chunk of money.  Unfortunately, victims of the fast-refund pitch are often the poorest taxpayers.  In fact, more than 26% of all tax filers from San Francisco’s Bayview neighborhood used RALs in 2007.

United Way: How has Earn It! Keep It! Save It! been able to combat them?

Vanessa: People trust us since we’ve been active in their local communities for seven years now, and we have a huge coalition of partners which includes nonprofits, local government, local churches, and the IRS. They’ve done a good job with outreach to the community, and educating taxpayers about hidden costs of that quick money.

Also, since many of our free-tax sites offer extra services like financial education classes or credit repair, we’re actually providing a lot of extra value.  Therefore, people really believe us when we say that you can get your whole tax refund back quickly with no fees of any sort. Also, by opening sites in late January, we’re able to help people who need their refunds in a hurry.

United Way: What were other notable aspects of this year’s tax season?

Vanessa: The average income of our tax fliers was a little bit higher. This is probably because more people were losing jobs toward the end of the 2008 and into 2009. And they were no longer able to pay to have their taxes prepared.

We also saw the fallout from the surge in foreclosures. Our tax-site coordinators requested and received special IRS training so they could better help families handle the tax issues raised by foreclosures.

United Way: Which county really stands out this year?

Vanessa: Alameda did a fabulous job. They had an almost 20% increase in the number of tax filers assisted – more than any other county! The partners there are very committed to Earn It! Keep It! $ave It! They do year-round outreach and advertising and have built up many trusted word-of-mouth referrals. In addition, the City of Oakland placed billboards in key neighborhoods.

View County by County Results
Alameda
Contra Costa
Marin
Napa
San Francisco
San Mateo
Solano