NEW YORK (1/22/07)--A revamp of the popular Free File program--in its fifth year--is expected to be more consumer-friendly for tax year 2006, and more restrictive of side product promotions (The Wall Street Journal Jan. 16).
According to the National Consumer Law Center (NCLC), consumers spent almost $1 billion in the latest year recorded for refund anticipation loans (RALs), described as an almost always unnecessary product (MiamiHerald.com Jan. 18).
In 2005, RALs drained about $960 million in loan fees and another $100 million in other fees from almost 9.6 million American taxpayers. The Consumer Federation of America and the NCLC have sent strong warnings to consumers not to use these expensive services, which can carry effective annual interest rates of 40% to more than 500%.
In past years, critics of the Free File program charged that the Internal Revenue Service (IRS) didn't take steps to prohibit private companies from marketing add-on products like RALs, leading consumers to think that paying for those extra services wasn't optional. This year, private companies won't be allowed to market RALs.
To qualify for the Free File program, tax filers must have an adjusted gross income of $52,000 or less. According to the IRS, it's expected that about 70% of the nation's taxpayers--95 million Americans--will qualify.
Free File is available only through the IRS website at irs.gov. The program is a partnership between the IRS and about 20 tax preparation software companies in the Free File Alliance. Two companies will offer Free File in Spanish, and now some Free File Alliance members are offering state returns for free (HeraldTribune.com Jan. 17).
Last year, about 3.9 million taxpayers used Free File, up from 2.8 million in 2003--the first year of the program.
For more information, read "Refund loan scams prey on cash-strapped holiday shoppers" in Home & Family Finance Resource Center.
Printed Tuesday, December 2, 2008
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