VITA (Volunteer Income Tax Assistance Sites) and Refund Anticipation Loans
- The Internal Revenue Service Volunteer Income Tax Assistance (VITA) Site Program offers free tax help to taxpayers who qualify, generally those with incomes of $49,000 or less. The program provides trained and certified community and credit union volunteers to help taxpayers with special tax credits and completion of their returns.
- Refund Anticipation Loans (RALs) are short-term (generally one to two weeks) secured by a taxpayer’s expected tax refund. They generally come with extremely high costs, often carrying triple digit Annual Percentage Rates (APRs).
What are VITA Sites and Refund Anticipation Loans (RALs)?
- The Internal Revenue Service Volunteer Income Tax Assistance (VITA) Site Program offers free tax help to taxpayers who qualify, generally those with incomes of $49,000 or less. The program provides trained and certified community and credit union volunteers to help taxpayers with special tax credits and completion of their returns. Refund Anticipation Loans (RALs) are short-term (generally one to two weeks) secured by a taxpayer’s expected tax refund. They generally come with extremely high costs, often carrying triple digit Annual Percentage Rates (APRs).
Who uses VITA Sites or RALs?
- Tax filers using the free services of a VITA site are restricted by income which changes annually. For tax year 2009, the income level is set at $49,000. In particular, families with Earned Income Tax Credits (EITC) and Child Tax Credits (CTC) are encouraged to use the services of a VITA site and avoid costly tax preparation services, which can average $187 per return.
- RALs are particularly appealing to lower income tax filers, many who receive substantial refunds through EITCs. IRS data report that nearly two-thirds of RAL borrowers in 2006 were EITC recipients with adjusted gross incomes of $37,300 or less, yet EITC recipients accounted for only 17% of 2006 taxpayers.
Why should credit unions care?
- Through participation in the VITA program, credit unions help lower-income consumers keep more of their EITC refunds in their own pockets. Credit unions help their communities and help connect more families to the benefits of credit union membership.
- In 2006, 9 million tax filers received RALs, draining $570 million from EITC refunds with another $57 million going to pay administrative and application fees. A credit union RAL alternative product can complement VITA operations if designed in a manner to safeguard both the consumer’s financial assets and the credit union’s risk exposure. Some of the benefits for offering a RAL product include: growing membership and services, saving consumers money, and offering financial education opportunities.
What can credit unions do?
- Credit unions can work with the VITA program in many ways including hosting a site, participating in a community site by providing volunteers or being on hand to open accounts, or by donating computers and supplies to a site.
- Credit unions can also offer an alternative product to a RAL. Alternative RALs, however, come with some risk, lots of work, and little return initially. Converting RAL borrowers into loyal, productive members requires more work, but that is where the payoffs begin.
To learn more about what your credit union can do – download the REAL Solutions® Volunteer Income Tax Assistance (VITA) Sites Implementation Guide or browse the Who’s Doing It tab above for specific case studies.
Getting Started with a VITA Program » View details
Family Credit Union started a VITA program in 2009. As a small credit union (under $10 million), the credit union learned the importance of using the services of local organizations and a college. The CEO shares the knowledge she learned from her first year.
Butte, Montana Credit Unions Partner » View details
Mountain West FCU partners with four other Butte, Montana credit unions during tax season to bring residents free income tax preparation through the VITA program.
Generations Federal Credit Union » View details
Generations Federal Credit Union has been offering an alternative to refund anticipation loans since 2007 that features a 0% interest rate. The credit union measures the success of its program not just through loan and cross sales volume, but from the fact that 80% of new members from the past three years are still doing business with the credit union.
How-To Implement VITA Sites
- Major Changes in the Quick Tax Refund Loan Industry – The NCLC/CFA 2010 Refund Anticipation Loan Report
- Building a Better Rapid Anticipation Loan – Author: Bill Myers
- VITA Steps to Success Brochure – Wisconsin CU League
- Large Consumer Tax Services Company: Products & Fee Structures
- Membership Growth Series: Generations FCU – CUNA News Now Article
- Refund Anticipation Loans: The Credit Union Way
- The Economics of Serving Low-income Employees at Tax Time’ Filene Research Institute. This site includes the ability to download the complete report.
- Center for Budget and Policy Priorities’ National Tax Credit Campaign Outreach. This site includes the ability to download resources and order a free hard copy of the annual EITC Outreach Kit.
- National EITC Outreach Partnership Directory. This site includes a state by state listing of EITC coalitions that provide outreach and free tax preparation with whom CUs can partner.
- IRS Volunteer Training Certification Process with links to the applicable tests