Apr 18, 2022 - Economy & Business

Tax prep fees eating into refunds for low-wage workers

Illustration of an income tax form being used as a white flag of surrender.
Illustration: Megan Robinson/Axios

Not to get all technical here, but doing your taxes is a headache. This year, more than half of tax filers turned to a professional for help, according to the latest IRS stats.

Why it matters: Even low-wage earners shell out for tax prep, cutting into the refund money they rely on to make ends meet, a new survey finds. Even more galling — most of these folks qualify for free filing services.

Driving the news: Monday is the deadline to file your federal return, but if you simply cannot, you can also file an extension.

  • There is a pot of gold waiting at the end of the anxiety rainbow. This year's average refund is $3,226.

By the numbers: Still, only one in five workers who qualify for free filing help use the service, according to a new survey of nearly 7,000 service sector workers conducted by the Shift Project. The ongoing survey is conducted by sociologists at Harvard and the University of California, San Francisco.

  • The median worker pays $100, equivalent to about six hours of work, to file their taxes each year. Some workers pay as much as $600 to file — a week's wages for someone earning $15 an hour.
  • Many of these workers qualify for the Earned Income Tax Credit, a refund offered by the federal government responsible for keeping millions out of poverty.

That means folks are using money meant to raise their standard of living and paying it back to tax prep companies.

  • "Refunds are really important to this group of workers and filing for taxes, an important part of the process of being able to receive those refunds just really cuts into the benefit that the refund is giving," said Evelyn Bellew, a resident fellow at Shift.

Zoom out: Taxes don't need to be this complicated. Other countries have figured out systems that are relatively painless, as Axios chief economics correspondent Neil Irwin explained nearly a decade ago.

  • If you're a wage earner who gets a weekly or biweekly check, the IRS already knows how much you made and how much was taken out of your check. They could just ... send you a refund if you overpaid, or a bill if you owe money. You could deal with it quickly.
  • Standing in the way — lobbying by companies that provide tax prep services, and some conservatives who believe making tax filing a headache helps fuel general anti-tax sentiment.

Bottom line: Don't expect any of this to change. But, if you earn less than $73,000, check out your options.

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