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Haddonfield, New Jersey 08033-2342

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Tax Update

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Tax Update

New Jersey Enacts Bill to Curb the Use of “Refund Anticipation Checks” by Tax Return Preparers

Governor Murphy signed into law P.L.2022, c.90 (S891) that prohibits specified tax preparers from engaging in certain practices involving refund anticipation checks and loans.  An income tax refund is the largest lump-sum payment that many residents in the State receive in a given year, and many tax return preparers take advantage of this fact by offering residents— particularly low-income residents—refund anticipation loans and checks at exorbitant interest rates or with other exploitative practices.

Under the new law, tax return preparers cannot require clients to enter into a refund anticipation check agreement in order to complete the prepartion or filing of state or federal individual income tax return. Tax return preparers are also prohibited from providing, offering, or advertising refund anticipation loan or check services using terms such as “free,” “no cost,” “no fee,” or other language that would lead a client to reasonably believe that the refund anticipation loan or check is provided at no cost to the client if the issuance of a refund anticipation loan or check results in, or is predicated upon, the assessment of higher or additional fees for other tax preparation or other services than are charged to clients who do not receive refund anticipation loan or check services.

The new law also expands existing tax return preparer disclosure requirements for refund anticipation checks.  Tax return preparers are now required to provide an itemized statement of all service charges and fees for tax return preparation, electronic filing of a tax return, providing or facilitating a refund anticipation loan or refund anticipation check and any interest charged, including the estimated amount of interest in the event a refund is delayed, under the terms and conditions of a refund anticipation loan; and any amounts to be paid to the tax preparer in the event a refund is delayed, under the terms and conditions of a refund anticipation check.

Tax return preparers who violate any of the provisions of this bill will be subject to the Consumer Fraud Act.

The new law defines a “refund anticipation check” as a check, stored value card, or other payment mechanism representing the actual or anticipated proceeds of the client’s federal or State income tax refund which was issued by a depository institution, tax preparer, or other person that received or anticipates receipt of a direct deposit of the client’s federal or State income tax refund and for which the client has paid a fee or other consideration for such payment mechanism.

The new law does not alter the definition of tax preparer, and thus, the new rules do not apply to certified public accountants, attorneys or enrolled agents.

The new law is effective immediately and first applies to  tax filings prepared in 2023 for calendar year 2022.

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