Free Tax Preparation Service for Low Income Families Announced

Jan 8th, 2008

Impact Alabama Founder Stephen Black, Mayor Sam Jones, Mobile Community Action Agency Executive Director Jimmy Knight, representatives from Regions Bank and area colleges, including the University of South Alabama and Spring Hill College announced the launch of an unprecedented effort to serve Mobile's working families. The initiative will provide free income tax preparation services to working families making less than $40,000/year.

This service is aimed at assisting families eligible for the Earned Income Tax Credit (EITC). The EITC is the federal government's largest and most successful antipoverty program for low-income, working families. However, each year, about 75% of Mobile's EITC recipients pay an average of $200 each simply to access this benefit. They also often take out predatory refund anticipation loans ("rapid refunds") on their expected refund at annual percentage rates of up to 800%, further eroding the benefits of the EITC. Over 25,000 families in the City of Mobile claimed an estimated $58 million through the federal EITC in 2004. However, these same families lost $4 million to commercial tax preparers through preparation fees and refund anticipation loan costs.

Impact Alabama's SaveFirst Initiative is in its second year of operation and will be training approximately 275 college, graduate, and law students from eleven campuses across the state to provide free tax preparation services in seven cities, financial literacy information, and opportunities for economic improvement to working families.

Each year, over 481,000 families in Alabama claim an estimated $1 billion through the federal EITC. However, these same families lose $72 million to tax preparation and refund anticipation loan costs. The average total refund for Alabama taxpayers claiming the EITC who also received other federal tax credits is $3,200. Alabama ranks 49th in the nation in terms of the percentage of families paying commercial preparers and taking out refund anticipation loans.