Help and savings hacks for income tax season

Tax season runs through April 17 this year, when your 2017 tax returns are due. Consumer Action has issued a handful of alerts relating to this tax season: Make your tax refund work for you!, Tax Identity Theft Awareness Week 2018 and EITC Awareness Day.

Here are some additional resources to help you weather tax season. Most are geared toward low- and moderate-income consumers, but not all of them are. For example, anyone can use the online forms at Free File Fillable Forms. And Credit Karma offers free tax return preparation and e-filing software that will work for most filers.

The Volunteer Income Tax Assistance (VITA) program offers free basic tax preparation assistance with electronic filing to consumers making $54,000 or less, people with disabilities, the elderly and limited-English-speaking taxpayers. IRS-certified volunteers provide the service at community agencies, libraries and other public places.

The Earned Income Tax Credit (EITC) helps low-income working taxpayers and families get money back when they file their federal income tax returns. Last year, the average credit was $2,470. Unfortunately, only 80 percent of those eligible to receive the credit claim it. To learn more about the EITC, download the Consumer Action publication Get Credit for Your Hard Work (2017 Tax Year).

Tax Counseling for the Elderly (TCE) provides free basic tax preparation with electronic filing for older people (age 60-plus). The IRS trains and certifies volunteers from non-profit agencies and offers them technical assistance. TCE relieves the financial burden of tax prep fees for elderly consumers living on fixed incomes.

Benefits.gov features a page dedicated to tax assistance, where consumers might find tax credits that they are eligible to claim.

If you owe taxes, it is always best to communicate with IRS and make payment arrangements. Avoidance will not make the tax debt go away; interest and late fees will accrue, and you will owe more. Those who are unable to pay their tax bill by the due date can establish a payment plan, or installment agreement. Depending on the length of the agreement or method of payment, there may be set-up fees and convenience charges. Interest and penalties continue to accrue until the debt is paid.

An offer in compromise allows qualifying delinquent taxpayers to settle their debts for less than the amount owed. After receiving your application along with a non-refundable fee of $186 and all required documentation, the IRS will review your request and base its decision on a number of factors, such as your income, expenses, ability to pay and assets. This is by no means a slam-dunk; generally, the IRS won’t approve an offer in compromise if it decides you can pay through an installment agreement.

Saving your refund

Two non-profit fintech innovators, Commonwealth and EARN, have tax-time savings programs that enable low-to-moderate-income consumers to save their tax refunds. Both agencies have been on the front lines advocating for programs that provide financial stability and security for consumers.

Commonwealth’s Save Your Refund program offers cash prizes for consumers who use IRS Form 8888 to split their tax refund and save a portion of it. (Participants can deposit the saved portion of their refund in a savings account, individual retirement account [IRA], 529 college savings account or prepaid card, or use it to buy U.S. savings bonds or a certificate of deposit [CD].)

EARN’s Savers Win offers consumers that take a pledge to save all or part of their tax refund a chance to win cash prizes. There are a couple of caveats to this sweet deal: You need to take the Savers Win pledge to save some of your tax refund, sign up for SaverLife and save at least $50 to be eligible to win prizes—50 weekly prizes of $100 and a $5,000 grand prize. EARN is a long-term partner of Consumer Action and we have featured their innovative work in past articles.

If technology and prize-linked savings are not for you, there are other meaningful ways to use your refund that will help build or improve financial health.

• Use your refund to pay down high-interest credit card debt.
• Build or boost your emergency savings account (46 percent of Americans do not have enough in savings to cover a $400 expense).
• Deposit your refund in your IRA (traditional or Roth) retirement savings account or your health savings account (HSA).

For other financial and tax preparation hacks, download Consumer Action’s Money Management 1-2-3 publications. Working as an independent contractor? Check out our Tax Basics for Earners in the ‘Sharing Economy’.