Military Taxpayers Must Seek New Refund Options
By Sylvia Cannon
Winter 2007-08
Servicemembers may need to rethink how they will access money quickly this tax season, since one popular option is now required to comply with the new Military Lending Act.
The goal of the new law is to protect servicemembers from predatory products such as payday loans. Among its positive effects, the law takes encouraging steps toward educating servicemembers about financial matters while protecting them from products that are not in their best financial interest.
The new law also limits interest rates on some short-term financial options, such as refund anticipation loans (RALs), which have been available for many years through tax preparation companies.
The Defense Department’s final rules for implementing the law require lenders to calculate annual percentage rates (APRs) differently than required by the Truth in Lending Act, using a new “Military Annual Percentage Rate” (MAPR) to describe the total cost of a loan. The MAPR must be disclosed before a military borrower agrees to a loan. The rules cap the MAPR at 36 percent, to include fees and other charges, on all loans made to troops and their families.
Demand for continued access to short-term financial products – whether to pay down holiday debt, repair the family car, make a major purchase or fund some other emergency expense – will continue, of course. So other options are available for those who have relied on RALs for quick access to tax-time cash.
Tax preparation companies offer new lines of credit to servicemembers through prepaid debit card accounts with year-round access to money at fixed APRs. These products also encourage military clients to open savings accounts and maintain them with continued deposits. (Fees may apply unless the holder makes deposits to the account.)
A non-loan option, the refund anticipation check, provides quick access to money after the taxpayer pays a flat, one-time fee to have the refund electronically deposited to a temporary account at a third-party bank. The bank delivers the refund, minus tax preparation fees, and money is available, as a check or deposited to a prepaid card, within eight to 15 days. (Check cashing charges may apply. Card fees may apply unless the cardholder makes deposits to the account.)
The Department of Defense encourages servicemembers and their families to seek financial assistance for unforeseen emergencies at their local military aid society. These societies offer interest-free loans to military families in need. To locate the office nearest you, visit your service-specific website:
- Army Emergency Relief: www.aerhq.org
- Navy and Marine Corps Relief Society: www.nmcrs.org
- Air Force Aid Society: www.afas.org
- Coast Guard Mutual Assistance: www.cgmahq.org
In addition, your local military bank or military credit union provides short-term, small-dollar loans at attractive interest rates.
Your installation’s tax office offers free tax preparation and electronic filing. Direct deposit refunds generally are received within 10 days of IRS acceptance of the tax return.
If you are experiencing financial difficulty, consider personal counseling available through your chain of command, installation personal financial management (PFM) program, legal assistance office or military aid society. The Department of Defense also offers several online resources to servicemembers and their families:
Military OneSource (www.militaryonesource.com) provides free, confidential financial planning; counselors are available toll-free at any time at 800-342-9647.
Military Homefront (www.militaryhomefront.dod/mil) offers reliable quality-of-life information to help servicemembers and their families, leaders and service providers in the “Personal Finance” section of the website.
Armed Forces Legal Assistance Services Locator (http://legalassistance.law.af.mil/content/locator.php) provides easy access to the nearest legal assistance office.
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Sylvia Cannon, a retired Air Force logistics officer and spouse of an active duty Army officer, has been an H&R Block officer manager for six years. H&R Block’s 12,800 retail tax offices nationwide can assist servicemembers with any tax or financial concern. Call 1-800-HRBLOCK or visit www.hrblock.com to find the nearest H&R Block location. Military families can learn more about making wise financial choices and find information on H&R Block’s Military Spouse Scholarship Program at www.hrblock.com/military.
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Save More For Your Retirement
If you're serving in a combat zone, you might be able to put more money toward your retirement. The Heroes Earned Retirement Opportunities (HERO) Act now allows you to make Individual Retirement Account (IRA) contributions based on excluded combat pay.
Contributions to IRAs normally are limited to your taxable earned income, but this offers little help for military members serving in
If you received combat pay after Dec. 31, 2003, you have until May 29, 2009, to make a contribution to an IRA. Retroactive contributions made by this date will be treated as if they were made prior to the end of the tax year to which the contribution applies. Contributions can be made to both traditional and Roth IRAs.
Source: www.hrblock.com
