January 2009: e-Wealth Coach Email
This month’s e-Wealth Coach is Mary Ruth Herbers, Director of Programs at the Center for Economic Progress in Chicago. Mary Ruth works on tax policy, tax outreach and education, and tax training programs focused on the needs of low-income households.
Saving During Tax Time
Dear Saver,
It’s January, and for many of us, that means tax time! Employers are sending out W-2’s, the IRS and state revenue offices are sending out tax booklets, and tax preparers are gearing up for their busy season.
And of course, millions of us are looking forward to receiving a tax refund. It’s not hard to see why; the average refund in 2007 was $2,345. The fact that many people over-pay their taxes and are eligible for sizable refunds means that tax season is a great opportunity for most households to start saving and “build wealth, not debt.”
The following tips will help you make the most of your tax refund.
- Consider how you’ll prepare your tax return and, if possible, take advantage the free tax preparation that’s offered through Volunteer Income Tax Assistance (VITA) programs. My organization, the Center for Economic Progress, offers free tax preparation to low-income households in Illinois, and the National Community Tax Coalition, our partner network of over 600 organizations, provides services across the country. Visit www.tax-coalition.org to see if you qualify and to find a free tax preparation location near you. The website will allow you to click on your state and will direct you to organizations in your area.
- Whether you take advantage of a free tax prep service or not, consider using the IRS’s Form 8888 to save part or all your refund. This form allows filers to split their direct deposit refund between up to three different accounts, so part or all of the refund may be placed directly into a savings account. More information is available at www.Form8888.org.
- Check to see whether you qualify for the Earned Income Tax Credit, a refund for low- to moderate-income individuals designed in part to offset the burden of social security taxes and to provide an incentive to work. For a family with two or more children, the EITC can be worth as much as $4,824 for the 2008 tax year. Volunteers at VITA sites can help determine your eligibility, or you can visit the IRS’s website at http://www.irs.gov/individuals/article/0,,id=96406,00.html.
- Avoid high-cost “rapid refunds” or “refund anticipation loans.” Many commercial tax preparation entities offer these loans so that filers can get their tax refund immediately, but the fees can be as high as $300-$400 dollars. Many VITA programs partner with financial service organizations to offer attractive, low-cost financial products and services to their tax clients so that they can avoid the high-cost options.
Here in Illinois, the Center for Economic Progress plans to help prepare tens of thousands of tax returns for working families across the state. I hope you can take advantage of our services of those of our partners in other states (www.tax-coalition.org), and I hope the information here helps as you begin to plan for your refund.
Sincerely,
Mary Ruth Herbers
Senior Director of Programs
Center for Economic Progress