Community Groups Offer Tax Prep Alternatives

By Kat Aaron

Madeline Arroyo used to pay a private company $100 to have her taxes prepared. Now, Arroyo gets her taxes done free and quick at the Lower East Side People’s Federal Credit Union thanks to an increasingly popular program across the city that enables low-income wage earners to get free assistance with their taxes as well as rapid refunds within a couple of weeks of filing their forms.

This is great for the community,” says Arroyo, 29, who will keep every dime of her modest $300 tax refund. “When you’re low on cash, it’s great to be able to come to a place like this and know they’re doing it the right way.”

This marks the third year that the credit union and more than 100 other sites around the city are preparing people’s taxes for free, on the spot. Many people who came to the credit union last year for tax prep are returning, and bringing friends and relatives.

“When their refund is calculated and they see the amount, and they realize that every penny of it is going in their pocket, you just see so much joy in people’s faces,” says Meagan van Harte, coordinator of free tax services at the credit union. “These are working people, and they need that money.”

In addition to preparing basic tax returns, the volunteer sites can help low income New Yorkers to claim the Earned Income Tax Credit (EITC) – a major tax credit for working people which can bring in up to $4,300 a year. Since the EITC is available for up to three years retroactively, families can reclaim upwards of $10,000 – a significant boost for many working families struggling with the poor job market and rising prices.

These free tax sites offer a sharp contrast to the high-cost tax preparers that target low income neighborhoods of color. The storefronts pop up at the start of each year, with empty offices transformed into Jackson Hewitt or HR Block outlets promising immediate cash. But the so-called “rapid refunds” these preparers offer are in fact high-interest-rate loans, with annual percentage rates of 40-700 percent.

Nationally, low-income consumers are the ones stuck with most of these expensive refund-anticipation loans. Almost 75 percent of Jackson Hewitt’s customers have incomes less than $30,000. And these high cost loans are siphoning off vital Earned Income Tax Credit dollars, one of the few anti-poverty programs left unmolested by the Bush administration. A new report by the National Consumer Law Center estimates that nationwide people receiving the EITC are spending a total of $1.73 billion dollars to get their refunds.

Margarita Lopez, City Councilmember representing the Lower East Side, has been a supporter of the free tax-prep sites since they appeared in 2003. And with good reason – last year alone, the credit union sites in her district processed almost 2,000 free tax returns, bringing over $2.1 million in refunds to the neighborhood. Other free sites around the city coordinated by the Community Food Resource Center prepared over 10,000 returns totaling $18.5 million in refunds.

But Lopez notes that there’s still a long way to go, with over 230,000 New Yorkers not filing tax returns and claiming the benefits for which they qualify. “Those 230,000 people are equivalent to $500 million that we are losing in the city of New York,” she says. And while putting tax dollars in New Yorker’s pockets is important, Lopez mentions another critical reason to file a tax return. “This is money that belongs to us, that we…have worked for and put in the coffers of the federal government. And I’ll be damned if that $500 million is going to be used to buy guns to kill people in Iraq.”

For more information about free tax preparation sites in New York City, see nedap.org; or call the IRS at 800-829-1040. Sites may have income restrictions on their service; most offer free tax prep to filers with incomes under $36,000-$40,000.