June 25, 2002

Tax Prepares Enjoying the Boon of Earned Income Tax Credit

In 2000, 34,449 working families and individuals who claimed Earned Income Tax Credit (EITC) in North Dakota, received a combined total of $51,373.

In a recent study conducted by the Center on Urban and Metropolitan Policy, the Brookings Institution, and the Progressive Policy Institute found that over 68 percent of tax filers who receive EITC hire a tax service to prepare their taxes.

The study showed how low-income taxpayers collect tax refunds, which includes an analysis of the spatial distribution of refunds, including an analysis of the spatial distribution of commercial tax preparers and loans in the nation’s 100 largest metropolitan areas.

Findings showed the nation’s largest commercial tax preparation service and tax refund leaders earned $357 million from fast cash products in the 2001 fiscal year, more that doubling from $138 million they earned in 1998.

"Low income EITC filers are less than 50 percent compared to high income EITC filers", says Debra Pankow, North Dakota State University Extension family economic specialist. "Cities and suburbs that are in the south and west sections of the United States are home to low-income neighborhoods with the highest concentrations of tax prepares."

In 1999, an estimated $1.75 billion was diverted toward paying tax preparation, e-filing, and high-cost refund loans. Half of the $30 billion in EITC claims were refunded through high-price loans in 1999.

"Tax payers spend about 10 percent of their income tax amount on tax preparation, e-filing and refund loans when using commercial tax preparers," says Pankow. "Typically prices include; $60 for federal return preparation, $34 for state returns, $20 for electronic filing, and up to $90 for refund loans, for a total of $204."

"The high cost of these services hurts not only individual families but diminishes the impact of the government’s largest anti-poverty program," says Pankow.

North Dakotans who are eligible for the EITC may receive free help through programs designed to assist in income tax filing. Such programs like Volunteer Income Tax Assistance (VITA) and for the elderly Tax Counseling for the Elderly (TCE). To locate a free tax preparation site near you call 1-800-829-1040. Local numbers North Dakota telephone numbers have been set up to assist tax prepares with questions they may have.

• Bismarck -- 701-221-5834 -- 600 second St.
• Fargo -- 701-232-4710 -- 657 Second Ave. N.
• Grand Forks -- 701-746-5283 -- 102 N. Fourth St.
• Minot -- 701-839-7741 -- 100 First St. SW