Come springtime, it doesn't pay to be a poor, unmarried working mother of three in Charleston. Especially when it's time to get your taxes done.
A local professional tax preparer recently discovered that her office, a branch of a national tax preparation chain, was charging appreciably higher fees for customers filing for earned income tax credit (EIC) on their federal forms than middle-class Joes and Janes who were filing fully itemized returns.
EIC, begun in the '70s by the federal government, is a refundable credit for the working poor — generally those making less than $15,000 per person in a single-parent household, or about $37,000 for a married couple with kids. The most a family or an individual can receive, with additional credits for children, is about $5,000.
The preparer, who will be referred to as Ms. Corning for the sake of this article and anonymity, was shocked at the $230 charged to a single mother of three who made less than $10,000, especially since all she did was run her company's EIC form and take out standard deductions.
All in all, it took maybe 10-15 minutes, she says, in part, because the woman had come into her office last year and none of her identifying information — address, marital status, etc. — had changed.
"They'll tell you it costs more because of having to work with the extra form, but really the form is in the software and it literally moves at the speed of light," says Corning.
Patti Hunt, the district manager for Jackson Hewitt, a national tax prep firm that Corning does not work for, thinks the $230 fee may have been a case of overcharging a customer.
But, Hunt says, her company charges $52 for the basic EIC form and $35 for a basic itemization.
What really surprised Corning was what she charged a professional woman for preparing a fully-itemized return which included education debt, moving expenses, student loan credits, and roughly $35,000 in salary.
It took more than a hour to finish her return, tapping Corning's extensive business and tax expertise, but cost only $150.
"There was more to it, the second lady didn't even really need the money," says Corning, during a rare off day during the busy tax-prep season. "She can wait until the IRS deposits her refund in her bank account two weeks later.
"But the other lady did not have a checking account, which means she can't get Direct Deposit. She can either wait a couple of months to get her IRS check or go through the 'rapid anticipation loan' process where, for another $125 or so, using her refund as collateral, she could get her money in eight to 15 days."
It galled Corning even more when she realized that, because the working mother of three didn't have a checking account, she would likely have to take her refund to a check-cashing store, where she would incur further pricey fees that may border violating state and federal usury laws.
Yes, Corning agrees, the first woman has her share of the blame in this scenario. It was her bad credit that probably discouraged a bank from taking a chance on her and allowing her to open a checking account with them.
But try and find someone raising three kids on their own, making less than $10,000 a year, who hasn't gotten behind on a light bill or bounced a check.
"I hear these kinds of stories constantly," says Cheryl Harleston, the Increasing Self-Sufficiency coordinator for the Trident United Way (TUW), which, with help from the Trident Urban League's help, has set up nine tax prep assistance centers around the Lowcountry to help the working poor take advantage of EIC funds rightfully coming to them.
According to TUW, Lowcountry families claim more than $80 million in EIC funds from the nation's largest anti-poverty program, with the average local EIC family receiving about $2,000. TUW also reports, citing IRS data, that an additional $17 million in EIC funds went unclaimed in 2003.
Harleston, who was the first black news reporter on Charleston television more than two decades ago, says it's hard for low-income families not to immediately cash in on whatever refund they've got coming, and she's trying to change that.
"When you don't have a lot of money, it's very, very tempting not to try and do things you've not been able to do all year; you've got needs, like a new washing machine you couldn't get, or a down payment on a car you may want to get," she says.
"Just depending on the needs of a family, it can be awfully difficult to put any of that money away, but that is also what we are saying to people that, 'Folks, we want you to, if at all possible, to delay gratification and eventually build on that money.'"
But convincing the local working poor to do that hasn't been as difficult as it has been to convince local employers to take part in another facet of the EIC program, which allows the EIC filer to spread out their refund, possibly smoothing out the bumps and the bruises of the coming year's finances.
Harleston has found that many small companies lack the business sophistication, or a separate payroll department, to handle such a request.
But Harleston admits she personally doesn't fully understand the "culture" that has to rush off and cash its tax refund checks to pay for basic needs either, "because I've never had to live that way."
She says one of the biggest misunderstandings that surrounds EIC is that it is some sort of government hand-out. "It's not; these people have been paying into it since 1975 — it's their money."
But money and the poor are soon separated in today's economic reality. And H&R Block, easily the nation's most recognizable tax prep company, is trying to do something about it.
H&R Block district manager Ted Brooks touts a financial product his company offers that allows filers to apply any portion of their return toward an IRA — something Harleston would surely approve of.
"In my opinion — Ted Brooks' opinion — the H&R Block Express IRA should be more targeted for low-income families because it gives them the biggest bang for the buck."
For a family bringing home annual salaries in the $30,000 range, the product reduces yearly maintenance fees on the IRA to zero if the family puts in $1,000. Thanks to the federal Saver's Credit program from the IRS, the filer can have an additional $500 to put toward the IRA, basically increasing the initial investment by 50 percent.
But H&R Block's IRA product has come under fire from N.Y. Attorney General Eliot Spitzer, the firebrand financial reformer who is now running for governor in that state, who alleged that the IRA earned less money than its yearly fees cost consumers. Brooks counters Spitzer's allegations, pointing out that there are no fees assessed if there's more than $1,000 in the account and that the federal savers' program kick-in delivers a healthy profit for consumers.
In a perfect world, every low-income family that comes through one of the 24 H&R Block offices Brooks oversees would let the tax professional on the other side of the desk become their financial advisor and craft a plan for a better future.
Brooks also lives in the real world, and in the real world, he's had family after working poor family ask for their refund checks as fast as possible so they can get their lights turned back on. And the Rapid Refund service, which has become as ubiquitous a name in the tax prep business as Kleenex in the facial tissue industry, incurs a hefty, albeit separate, bank fee.
Brooks declined to comment on the difference in what H&R Block customers pay for filing EIC forms along with their returns as compared to middle class itemizers. He did allow that his company charges more for returns the more complicated they become.
But a poor woman comes into Corning's office, files for EIC, and gets charged roughly 50 percent more than an obviously self-sufficient woman with no kids whatsoever? While both women got back nearly everything they had paid in taxes, something still isn't adding up for Corning.
"The tax preparation companies aren't the only bad guys in all of this," says Corning, who acknowledges that low-income filers are appraised of everything they're being charged for and sign a contract saying they're OK with it.
"But something has to be done to help these people out."