When "free tax preparation" actually costs money

The tax season is here, and this means the usual barrage of ads from tax preparation services. This year one of the biggest players on this field, H&R Block, has launched a big campaign in our state touting their "free" tax services to potential clients.

This ads, however, are highly misleading. David Rothstein explains:

The truth is that the “free” program offered in Block and Jackson Hewitt stores, now with kiosks inside Walmart, is more of a ploy to get customers in the door than to offer them free assistance. To be clear, when asked, all three companies are pretty clear about that and what they are doing isn’t illegal. But is it deceptive? The program only covers the 1040 EZ form, as revealed in the fine print. Most families, especially those getting a tax refund because of the Earned Income Tax Credit (EITC), are not going to use that form. According to Block, only 16% of their clients were eligible for the 1040 EZ in 2010.

Most families do not know the nuances of the 1040 forms and enter the store thinking they are getting free tax preparation. The 1040 EZ does not cover: anyone with children who plans to claim them as dependents, anyone who wants to itemize deductions (homeowners usually), and anyone claiming student loan interest, health care credits, child credits, or retirement credits. And of course, the nation’s largest poverty relief program: the EITC. The cost of paid preparation for these items varies but the federal return ranges from $89 to $250 (not including state, local, e-filing, and other fees).

The ads are not flat out lying, but they do hide all this relevant information to the (very) small print. Any potential client that heads to H&R thinking on filling their taxes at no cost will end up having to hear a sales pitch, and probably losing money if he decides not to take any "special" offer.

This is specially galling as EITC (earned income tax credit), a tax credit for low income working families an a key component in the poverty relief efforts of both Federal and State governments is not part of the "free" tax preparation package. H&R will either make money convincing clients to get the "extra" services they actually charge for to get this benefit, or will make the client lose money if they just stick to a "free" service that may actually take money away from their pockets.

It is important to remember, above all, that there is a truly free tax preparation system in place in the state for families in Connecticut: the Volunteer Income Tax Assistance program, or VITA. CAHS is working with 45 other community partners in six coalitions to offer tax preparation for families making less than $50,000 a year in a program funded and supervised by the IRS itself. We have more information of our VITA program and a listing of sites and partners here.

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