Tax Preparers Take a Cut and Give Out High-Interest Loans:

Low-Income Baltimore Families May Not Receive Full Benefit of their Earned Income Tax Credits

About 73,000 low-income Baltimore families are eligible to take advantage of the Earned Income Tax Credit (EITC) when they file their tax returns this year, according to a new study by the Brookings Institution’s Center on Urban and Metropolitan Policy. However, in hopes of getting their refund a little earlier, a significant number of Baltimore EITC filers are expected to opt for what the Center is calling “refund anticipation loans” from commercial tax preparers.

The cost of these “rapid refund loans” is usually around $100, but during tax season can be as much as five times higher. In addition to these costs, the interest on these loans can be as high as 800 percent. In the year 2000, 52 percent of Baltimore EITC filers used these commercial preparers even though free services were available.

The Baltimore CASH Campaign, a local coalition, observed that the tax credits are helping boost the income of Baltimore’s poorest residents, but suggested the need for more access to free tax preparation services.

To qualify for an EITC, families must earn less than $33,178 (or less than $34,178 for married workers in 2002) and have two or more children. In addition, Maryland is among a number of states that offer a state-level earned income tax credit, with this year’s valued at $660.

Taxpayers can obtain information on locations for free filing of their tax return by calling 410-685-0525 (local to Baltimore) or 1-800-492-0618 (toll free, for the rest of the state).


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This story was published on January 8, 2003.