Last week the New York Times highlighted a trend among low-income communities: people seeking tax prep at unregulated, sometimes fraudulent, pop-up shops. The article explains, "for millions of low-income Americans tax season means the biggest one-time influx of money all year." When preparers hand these customers a lump sum much larger than they're used to seeing on a daily basis, many filers don't think to check the numbers. After all, they sought a professional to do the work so they wouldn't have to.
Low-income tax filers are vulnerable. Tax-prep businesses prey on their refunds, taking advantage of their willingness to accept whatever payout they are given. In the field with USFD I saw the difficulty households had recalling details from their tax returns. I was tasked with collecting data on the specific amounts each household received from federal refunds, state refunds, Earned Income Tax Credits, and Child Tax Credits - in addition to any fees subtracted from the total. Over and over again the families I interviewed shrugged, saying they only knew the final amount deposited into their account. (Might you say the same thing?) And to them, any lump sum was often better than no lump sum at all.
This post was written by Julie Siwicki of the Financial Access Initiative. The views expressed therein are those of the author, and not necessarily of the USFD project or its funders.