It’s officially tax time! We know this can be a stressful time, but here is a helpful FAQ to help you understand some tax prep options and think about how to leverage tax time to build credit!
Not sure where to start when it comes to your taxes or credit building options? If you’re already a participant, contact us!!! If you are new to us, you can sign up for FREE, unlimited one-on-one counseling and coaching HERE!
Building Credit During Tax Time:
I’ll be receiving a tax refund this year! How can I use it to build my credit?
If you’ll be receiving a tax refund this year, contact your Working Credit Counselor to find out how best to use the money to improve your credit score. In the meantime, below are some thoughts to get you started!
1. Get your current accounts in good standing. If you have late payments or missed payments on your current credit accounts, make up those payments if you can. The amount your credit score might drop depends on your starting score and how late your payment is (30, 60 or 90 days). Check out this FICO® score simulation for more information. Remember, the higher your starting score and the later the payment, the greater the credit score drop will be. The sooner you catch up on a late payment, the better. Besides, making those payments could keep more late fees from adding up, and from your account eventually getting charged off and going to collections. While catching up on payments may not undo the damage of a late or missed payment on your credit in the short-term, your score will start to recover eventually if you continue to pay your accounts on time.
2. Pay down revolving debt. Paying down your credit card debt to under 30% or lower of your available credit card limit (individually for each card and collectively across all cards) will have a significant impact on your credit score. People with the highest credit scores tend to have credit utilization between 6-10% on their revolving credit accounts. While that’s a great goal to aim for, start with paying down what you can, no matter how small that amount may seem at first. Small wins can add up to big ones over time.
3. Take out a Credit Builder Loan. If you have no credit history, a limited credit history, or need to rebuild credit after financial hardship such as bankruptcy, foreclosure, or identity theft, to name a few examples, a Credit Builder loan might be the right tool for you! Unlike a traditional personal loan, credit builder loans don’t give you the money upfront. Instead, the lender holds the loan amount in a bank account. Each month, you make your loan payment and the lender reports your payment history to the credit bureaus, which helps you build credit history. Once you pay off the loan amount, the money inside the account comes back to you, minus any interest charged on the loan. In other words, these loans give you the opportunity to put some money away for savings while you build your credit. If you have trouble gaining access to other credit products or want to build credit while you build some savings, a credit builder loan could be the right option for you. At Working Credit, we may be able to help you access a credit builder loan product through a nonprofit Community Development Financial Institution like Justine PETERSEN, or you may wish to explore options with a credit union, like Self-Help, or a national financial technology company like Self Inc.
4. Use your refund as a deposit on a secured card. For many, a secured credit card may be a good entry point for accessing credit cards. A secured card works just like a regular credit card, except you put down a security deposit that is usually equal to your credit limit. For example, you may have a secured card with a $100 credit limit and a $100 security deposit. Like a deposit for utilities, a secured card deposit is used to cover your bill if you don’t pay back what you owe. There are many different secured credit cards to choose from, so shop around or check in with your Working Credit Counselor to decide which one is right for you.
5. Work with a Working Credit Counselor! Not sure where to start when it comes to your taxes or credit building options? If you’re already a participant, contact us!!! If you are new to us, you can sign up for FREE, unlimited one-on-one counseling and coaching HERE!
Frequently Asked Questions about Tax Returns:
What are the minimum income requirements for filing my 2021 tax return?
There are several factors that affect whether or not you will need to file a tax return, including your age, gross income, and filing status. you likely have to file a 2021 return if you are under 65, earned at least $12,550 in 2021, and file single.
If I earn less than that, are there any benefits to filing?
There are benefits to filing your taxes even if your income falls below these thresholds. You may be eligible for tax credits that entitle you to a refund. Tax filing is also an important way to verify your income if you are applying for Federal Student Aid, social security, or a loan from a bank or credit union.
What if I haven’t filed last year’s tax return?
If you didn’t file last year’s return and are owed a refund there are no penalties. If you owe taxes, you might owe the IRS a “failure to file” and “failure to pay on time” penalty in addition to last year’s taxes. You only have three years from the initial return due date to file and claim a refund you are owed.
What is the Earned Income Tax Credit and am I eligible?
The Earned Income Tax Credit (EITC) is a tax benefit for people earning income from a job. The EITC can help cover any federal income tax workers may owe at tax time. Workers earning lower wages may also get cash back through the EITC refund. Eligible workers who claim the EITC on their tax return can receive a refund even if they do not have a filing requirement. Learn more about the EITC and see if you are eligible.
Where do I go to find free tax preparation services?
There are a number of options, including but not limited to the following:
1. Qualifying taxpayers (anyone who made $58,000 or less in 2021) can have their basic tax return prepared and filed for free by certified volunteers at IRS Volunteer Income Tax Assistance (VITA) programs. Find a site near you here.
2. If you want to file your taxes yourself, MyFreeTaxes, an online program by the United Way, offers households that made less than $73,000 in 2021 a way to file state and federal returns for free.
3. Credit Karma offers a free online federal and state tax filing program at any income level. Learn more about its Cash App Taxes filing program here.
4. Depending on where you live, there may also be other local resources to help you with your tax preparation. For example, if you live in Chicago, click here to see if you qualify for assistance from Latter Up! If you’re in Boston, check out Boston Builds Credit here, or click here to learn about tax preparation options made possible by StreetCred in collaboration with Boston Medical Center.
How do I check the status of my refund?
1. Federal Refund Status: If you need to check the status of your refund, you can use the IRS online application by clicking on the following link: “Where’s My Refund?”. You can also check the status of your federal refund by phone by calling the IRS Refund Hotline at 1-800-829-1954. For video assistance with tracking your Federal refund, please click here.
2. State Refund Status: Most states provide online status inquiry. Some states have automated phone verification for refund status, those telephone numbers are provided on the website.
Alabama Arizona Arkansas California Colorado Connecticut Delaware DC Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina Utah Vermont Virginia West Virginia Wisconsin
Why is my refund delayed?
There are a number of reasons that the tax refund could be delayed. First, check to make sure that you received an email confirmation that your return was accepted by both the federal and state government. Second, check to make sure that all of your tax documents were included with your return. Missing documents are a common reason for refund delays.
If you claimed the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (ACTC), your refund may be delayed. If your tax return included an Individual Taxpayer Identification Number (ITIN) application/ renewal, or if you recently received a new SSN for yourself or anyone else on your return, this could also delay your refund..
I’ll be receiving a tax refund this year! How can I use it to build my credit?
If you’ll be receiving a tax refund this year, contact your Working Credit Counselor to find out how best to use the money to improve your credit score. In the meantime, below are some thoughts to get you started!
1. Get your current accounts in good standing. If you have late payments or missed payments on your current credit accounts, make up those payments if you can. The amount your credit score might drop depends on your starting score and how late your payment is (30, 60 or 90 days). Check out this FICO score simulation for more information. Remember, the higher your starting score and the later the payment, the greater the credit score drop will be. The sooner you catch up on a late payment, the better. Besides, making those payments could keep more late fees from adding up, and from your account eventually getting charged off and going to collections. While catching up on payments may not undo the damage of a late or missed payment on your credit in the short-term, your score will start to recover eventually if you continue to pay your accounts on time.
2. Pay down revolving debt. Paying down your credit card debt to under 30% or lower of your available credit card limit (individually for each card and collectively across all cards) will have a significant impact on your credit score. People with the highest credit scores tend to have credit utilization between 6-10% on their revolving credit accounts. While that’s a great goal to aim for, start with paying down what you can, no matter how small that amount may seem at first. Small wins can add up to big ones over time.
3. Take out a Credit Builder Loan. If you have no credit history, a limited credit history, or need to rebuild credit after financial hardship such as bankruptcy, foreclosure, or identity theft, to name a few examples, a Credit Builder loan might be the right tool for you! Unlike a traditional personal loan, credit builder loans don’t give you the money upfront. Instead, the lender holds the loan amount in a bank account. Each month, you make your loan payment and the lender reports your payment history to the credit bureaus, which helps you build credit history. Once you pay off the loan amount, the money inside the account comes back to you, minus any interest charged on the loan. In other words, these loans give you the opportunity to put some money away for savings while you build your credit. If you have trouble gaining access to other credit products or want to build credit while you build some savings, a credit builder loan could be the right option for you. At Working Credit, we may be able to help you access a credit builder loan product through a nonprofit Community Development Financial Institution like Justine PETERSEN, or you may wish to explore options with a credit union, like Self-Help, or a national financial technology company like Self Inc.
4. Use your refund as a deposit on a secured card. For many, a secured credit card may be a good entry point for accessing credit cards. A secured card works just like a regular credit card, except you put down a security deposit that is usually equal to your credit limit. For example, you may have a secured card with a $100 credit limit and a $100 security deposit. Like a deposit for utilities, a secured card deposit is used to cover your bill if you don’t pay back what you owe. There are many different secured credit cards to choose from, so shop around or check in with your Working Credit Counselor to decide which one is right for you.
5. Work with a Working Credit Counselor! Not sure where to start when it comes to your taxes or credit building options? If you’re already a participant, contact us!!! If you are new to us, you can sign up for FREE, unlimited one-on-one counseling and coaching HERE!
Worried about next year’s taxes?
Do a paycheck checkup to make sure your withholding matches your current tax situation, especially given the new tax rules. Use the IRS Calculator to make sure you have the right amount.
