Dept. of Revenue: A Drain on Working Families

Jessica Iverson, Communications Officer, 608-261-2271

MADISON— As tax season approaches, some tax preparation companies and even some car dealerships offer “instant” or “fast” tax refunds for their customers. Although consumers may be attracted to the prospect of receiving their tax refund as quickly as possible, those who sign up for such programs may be paying unnecessary fees and interest to receive their tax refunds. This is because “instant refund” checks are not early tax refunds; they are actually high-interest loans from banks.

“Essentially, taxpayers who use these Refund Anticipation Loans (RALs) are paying a high price to borrow their own money,” said Michael L. Morgan, Secretary of Revenue.

RALs mean high fees and interest rates for those who choose them. An average refund of $2,100 can carry RAL-associated fees of $225 or more. Plus, if a refund is delayed or denied for any reason, the consumer is responsible for paying back the loan as well as all fees, which typically increase dramatically after 10 days. In 2002, Wisconsin taxpayers paid about $27.3 million in fees associated with Refund Anticipation Loans.

Half of all RAL applicants are struggling to make ends meet and many are eligible for the Earned Income Tax Credit, a credit designed to aid low-income working families. These families are least able to afford giving up any of the money they will receive as a tax refund.

“Before electronic filing, these high interest loans may have been attractive because paper tax returns take several weeks to process,” said Secretary Morgan. “But with today’s e-filing, state and federal refunds are available within days and refunds can be deposited directly into a bank account. Electronic filing allows people to receive their refunds quickly and efficiently–at no cost.”

Those in need of tax help can visit a free tax preparation site. Trained volunteers will prepare tax returns for free and many sites offer electronic filing. To find a site, call 1-800-829-1040.