Counties with a better proportion of low-income or residents who’re Black or Hispanic usually tend to even have storefront places of work of paid tax preparers, based on a new report.

Paid preparers can usually make errors in submitting that may result in errors or smaller refunds, and sometimes leverage their providers to cost excessive charges that offset money from issues just like the Earned Earnings Tax Credit score, wrote Portia Allen-Kyle, chief advisor at Shade of Change, a racial justice group, together with Higher IRS, a gaggle supporting free, direct tax submitting.

“Their preying on EITC claimants is not by accident or coincidence; exploiting low-income taxpayers is core to the business model of these companies,” Allen-Kyle wrote.

“Given the eligibility requirements for the EITC, these taxpayers often are in economically precarious positions and can fall prey to unscrupulous practices such as payday lending products that advance claimants their tax refund if they agree to let the tax preparation company skim off the top.”

By cross-referencing an IRS record of preparers, the annual IRS Statistics of Earnings information e-book on how returns are filed, and U.S. Census demographic information, Allen-Kyle discovered paid preparers extra prevalent in counties with sure demographic options.

For instance, she discovered counties with extra Black taxpayers and EITC claimants had 7% extra Liberty Tax and 14% extra Jackson Hewitt areas, two main chains within the paid tax preparation trade.

She additionally stated counties with extra Hispanic taxpayers and EITC claimants had 11% extra Liberty Tax areas, 8% extra Jackson Hewitt areas and 5% extra H&R Block areas.

The Earned Earnings Tax Credit score, a tax break that reduces the federal earnings tax invoice for working class taxpayers, has been criticized by Republicans for a very long time for having excessive error charges.

The Authorities Accountability Workplace discovered EITC payments made up 7% of all improper federal payments in 2022, funds that shouldn’t have been made in any respect or had been the mistaken quantity. Whereas massive, the proportion was not as large because the Paycheck Safety Program’s, which was 12%.

Allen-Kyle’s research recommended lots of these EITC errors might be traced again to paid preparers.

A GAO research within the early 2000s discovered error charges on EITC returns had been as excessive as 94%. A more recent study in 2014 by GAO visited 19 unenrolled preparers — nearly all of preparers and never topic to IRS regulation — for tax prep and located solely two did the taxes accurately, with the remainder having errors starting from an underpayment of $52 on a refund to an overpayment of $3,718.

Paid preparers can even cost excessive charges or induce prospects to get pre-refund checks or loans that cut back the dimensions of their EITC. A Progressive Policy Institute study in 2016 found low-income taxpayers in Washington, D.C., and Baltimore had been charged prep charges as excessive as 22% of the dimensions of their EITC quantities.

Tax prep companies have usually argued the phrases of such merchandise are made clear when they’re provided and are topic to strict disclosure laws. Additionally they say they’ll present prospects with comfort by getting them cash quicker.