If you are like most consumers, tax time couldn’t come soon enough. After the grueling expenses of the holiday season, long overdue car repairs, and much-needed summer vacations, consumers are anxious to file their taxes - especially if they expect a refund.
By now, you have probably seen and heard many commercials advertising Refund Anticipation Loans (RAL) and Refund Anticipation Checks (RAC). These ads tempt with the promise of same-day cash refunds in eye-popping amounts. If you are debating using one of these “convenient” loans, here is what you need to know.
The fees that most tax preparers charge for Refund Anticipation Loans and Checks verge on predatory lending, much like payday and title loans. These loans are often high-profit, low-risk loans marketed toward low-income individuals.
To get the loan, filers will pay a tax preparation fee, loan origination fee, and electronic fee, all of which will be deducted from your original refund amount. Because the loans are short term, the annualized interest rates often soar to 100 percent or higher. Ask yourself, why pay a fee for your own money?
The IRS defines RAC’s and RAL’s as financial products on their website and states, “Tax refund-related products are financial products based on taxpayers receiving a tax refund. Financial institutions offer a variety of financial products to taxpayers based on their refunds. Such products include a Refund Anticipation Loan (RAL) which is money borrowed by a taxpayer from a lender based on the taxpayer’s anticipated income tax refund, and a Refund Anticipation Check (RAC) which directs the refund to a financial institution which disburses fees and the balance to the taxpayer. The IRS is in no way involved in or responsible for RALs, RACs or other financial products.”
There are several ways to speed up your tax refund.
Have all of your information together: Incorrect or incomplete submissions can delay your tax refund.
File electronically: It is much quicker than submitting a paper return.
Use direct deposit: Direct deposit is the quickest way to receive your tax refund. Refunds are typically disbursed within 21 days of your tax return being accepted, sometimes earlier.
File for free at a local VITA site: The Volunteer Income Tax Assistance (VITA) program offers FREE tax preparation services for low-income individuals and families by trained IRS tax preparers. Most sites offer appointments or walk-ins. Find a location near you at UnitedWaySELA.org/VITA.
So this tax season, be patient and avoid the fees. It’s worth the wait.
Director, Financial Capability
United Way of Southeast Louisiana