In 2002, researchers from the Brookings Institution and the Progressive Policy Institute (PPI) wrote a groundbreaking study entitled “The Price of Paying Taxes: How Tax Preparation and Refund Loan Fees Erode the Benefits of the EITC.” This report was one of the first to highlight the costly dependence of low-wage workers on national tax preparation chains. The study found that tax preparation and other services cost eligible workers an estimated $1.75 billion in Earned Income Tax Credit (EITC) refunds; that paid preparer services tended to cluster in low-income neighborhoods where large numbers of families claim the tax credit; and, that EITC recipients in Washington, D.C. paid, on average, 10 percent of their tax credit refund to paid preparers.
Subsequent studies by the federal government as well as private researchers have reaffirmed several of the findings from the Brookings and PPI research, while also highlighting other problematic aspects of storefront tax preparers. These include significant error rates on filings and a heavy reliance on EITC filings to generate revenue. Since the “Price of Paying Taxes” study appeared, the practice of charging exorbitant extra fees for filing EITC forms with returns has persisted and grown.
As a longtime advocate for making work pay—PPI called for dramatically expanding the EITC in its very first policy report in 1989—the Institute decided to revisit the 2002 study and take a fresh look at what it costs low-income workers to file tax returns. Our 2016 update yields three major conclusions:
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