Walmart launches free income tax return service, but it may not be free for many

Cleveland Plain Dealer - January 19, 2012
   

By Teresa Dixon Murray

The nation’s largest discount store chain is now offering low-cost help in filing income tax returns. Consumer advocates, however, caution that the offer is deceptive and say filers could end up with extra fees.

Walmart is the first large, general merchandise retailer to tip-toe into tax preparation. Its stores nationwide, including most in this area, have had representatives from H&R Block and Jackson-Hewitt on hand daily since last week to help people prepare tax returns. The practice will continue through the filing deadline on April 17.

Preparation is free only for those filing a 1040EZ simple form, which cannot be used by anyone with dependents, 65 or older or itemizes deductions. Charges to complete other forms are set by H&R Block and Jackson-Hewitt and will vary depending on the return, vendor and location.

“Customers need to make every dollar count in this tough economy,” said Daniel Eckert, vice president of Walmart Financial Services.

David Rothstein, a project director at Policy Matters Ohio in Cleveland, said free income tax preparation might sound good, but he fears it’s a bait-and-switch.

“I think it’s deceptive to tell low- to moderate-income families that you’re going to do their tax return for free, but only 15 percent of H&R Block customers did the 1040EZ last year,” Rothstein said.

“Most clients are not going to get free tax preparation. If they’re really marketing this for family, the vast majority of those people are not going to qualify for the 1040EZ.”

He noted that even those who qualify to file a 1040EZ at no charge may incur fees for filing state and local returns or getting refund-anticipation loans or refund-anticipation checks.

Tax filers can get free help with all basic tax forms from a number of community service groups that offer help during the filing season, said consumer advocate Chi Chi Wu, an attorney at the National Consumer Law Center in Boston. To find Cleveland-area locations, call 211, the community’s help and information line.

In the past, businesses such as car dealers and furniture stores offered on-site tax preparation in hopes that filers would agree to a refund-anticipation loan and use the money to buy a car or a new living room set.

But these offers have gone away as the Internal Revenue Service has virtually squeezed costly and controversial refund-anticipation loans out of existence and also is pushing tax preparers to register with the IRS.

Consumer groups have been most critical of refund anticipation loans, which are one- to two-week loans made by banks in advance of someone’s income tax refund. The loans can be expensive: Jackson-Hewitt’s partner bank charges $61 for an advance of $1,500. That works out to an interest rate of 149 percent.

Jackson-Hewitt is offering refund loans at some Walmart locations and another refund anticipation product at others, a Walmart spokeswoman said.

H&R Block, meanwhile, will offer refund-anticipation checks with no fee if the refund is credited to H&R Block’s prepaid debit card, called an Emerald Card. This option allow filers to pay their return preparation fees out of their expected refund and get their money perhaps a week or two sooner than if they had the IRS mail a check.

Beyond the early refund options, Rothstein of Policy Matters Ohio fears people could fritter away their refunds with charges for filing state and local returns, and fees for using the refund debit cards. He noted that some consumers could be hit with fees when they withdraw money at the ATM or even when they check their balance.

“That’s exactly the issue when you’re dealing with these free offers,” said Wu.

Walmart spokeswoman Sarah Spencer said the store cannot guarantee what H&R Block and Jackson-Hewitt might charge for extra services, but said it promises that filers will receive written disclosure of any charges before the return is done. “It will be as clear and upfront as possible,” she said, noting that some tax prep services “are not always transparent.”

Consumer advocates have criticized refund loans for targeting low-income filers, particularly people who get hefty Earned Income Tax Credits, which is a tax break for working poor families. In 2009 — the latest year for which figures are available — 7.2 million consumers paid $600 million for refund loans.

The IRS has also cracked down on refund loans by refusing to give tax preparers access to information about whether a filer owes any debts that could reduce the refund. The IRS subtracts things like back taxes, overdue student loans and child support from refunds. Now, Jackson-Hewitt caps the loans at $1,500, down from $7,500.

The Consumer Federation of America is rejoicing over the Federal Deposit Insurance Corp.’s settlement last month with Republic Bank & Trust, Jackson-Hewitt’s partner, which is the last bank in the nation to offer refund-anticipation loans. The FDIC is requiring Republic to pay a $900,000 civil penalty and to stop the loan program as of April 30.

Regulators have also stopped H&R Block from offering refund loans by ordering HSBC Holdings, an H&R Block partner, to end refund anticipation loans and refund anticipation checks.

Walmart launches free income tax return service, but it many not be free for many

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