Mayor Stephanie Rawlings-Blake, Sara Johnson

Mayor Stephanie Rawlings-Blake presents Sara Johnson, Baltimore CASH Campaign Director, with a proclamation in recognition of the program's efforts during the announcement of tax preparation sites for the Baltimore CASH (Creating Assets, Savings and Hope) campaign. (Colby Ware / Special to The Baltimore Sun / January 31, 2011)

If you are a low- to moderate-income taxpayer and you shell out any money to have your taxes done, you're likely paying too much.

Nowadays, with all sorts of avenues for filers of modest means to get their taxes done for free, paying someone to do the job is an unnecessary expense.

Before you take your W-2 to a preparer, look first to see if you qualify for free help through federal and state governments as well as nonprofits. On Monday, for example, the nonprofit Baltimore CASH Campaign announced 16 sites in the city and one in Baltimore County where filers meeting certain income limits can get state and federal returns completed and filed at no cost. (Some of the sites also will help families fill out the Free Application for Federal Student Financial Aid to qualify for college aid.)

Still, each tax season — and this one is no different — finds tax preparation businesses pitching high-fee products and services to low- to moderate-income filers who can use every penny they can get.

One positive sign this season is the decline of the refund anticipation loan, thanks to separate actions by the government. A refund loan is an advance on a tax refund. The fees charged are sometimes the equivalent of getting a loan at an annual percentage rate of a few hundred points.

The IRS abetted this lending practice for years by providing tax preparers and their partner banks with a "debt indicator" that signaled whether filers owed back taxes or other debt that would reduce their refunds. This information was used to decide whether a customer could get a refund loan.

Last summer, the IRS announced it would no longer give out the debt indicator because taxpayers had other ways to get their refunds in a hurry — by electronically filing and having their refunds directly deposited in their bank account.

On top of that, federal regulators last year ordered some banks, including HSBC — which partnered with H&R Block — to stop making refund anticipation loans.

Not that refund loans have entirely disappeared. They are still being aggressively hawked by Jackson Hewitt, for instance. But even Jackson Hewitt has scaled back on them.

You used to be able to get a refund loan for as much as $7,500 through Jackson Hewitt. Now, the loan limit is $1,561.22, with $61.22 of that pocketed by the lender. Jackson Hewitt blames the reduced loans on the loss of the IRS debt indicator.

As refund loans decline, be prepared to see more pitches for refund anticipation checks, warns Jean Ann Fox, director of financial services for the Consumer Federation of America. H&R Block, which isn't offering refund loans now, is promoting refund anticipation checks for $32.95.

With a RAC, the filer receives a temporary bank account in which the IRS can directly deposit the refund in eight to 15 days. Any fees for tax preparation are subtracted from the refund and then the taxpayer is issued a check or a prepaid card for the balance. The bank account is then closed.

RACs appeal to those who don't have a bank account or don't have the cash up front to pay to have their taxes done.

But if you have an account, you can get your money just as quickly if you elect to have your refund directly deposited. Plus, with so many options for free tax preparation, you likely could avoid those fees, too.

Even if you don't qualify for free help, shop around for tax services, says Robin McKinney, director of the Maryland CASH Campaign. There are plenty of low-cost software options and some small tax preparers may offer a better price than large tax firms, she says.

Teffany Horne of Baltimore has been promoting the free tax service provided by the Baltimore CASH Campaign for years. She appeared at a news conference Monday announcing the nonprofit's free tax help for singles who made less than $25,000 last year and families that earned under $49,000.

More than a decade ago, Horne took out a refund loan after her tax preparer promoted it. "Who doesn't want their money quickly?" rhetorically asks the 44-year-old pharmacy technician.

But she was disappointed. Not only did she pay for the loan, but her refund was put onto a prepaid card that charged her a fee every time she used it.

Since then, she has gone to Baltimore CASH during tax season and recommends the group to everyone else who may be eligible for free help.

eileen.ambrose@baltsun.com



Free tax help in Maryland



•Call 211 or United Way's First Call for Help at 410-685-0525 for free tax preparation sites near you, including those offered by the Baltimore CASH Campaign. Or make an appointment for tax preparation by the Baltimore CASH Campaign at http://www.bmorefreetaxes.org.

•Get your federal tax return done through the Internal Revenue Service's Free-File program at http://www.irs.gov if you made $58,000 or less last year. Some tax preparers in the Free File program also do state income tax returns for free.

•The Maryland comptroller's office will prepare your state income tax return if you bring a copy of your federal return and other documents to one of its dozen offices. Find the locations at http://www.comp.state.md.us/.

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