Smart TaxesSmart Taxes

You don't want a tax refund loan

H&R Block's inability to provide the loans this year is good news for consumers. Why pay enormous fees to get your own money?

By Teresa Mears Dec 28, 2010 5:58PM

You may have heard that H&R Block won't be offering tax "refund anticipation loans" this year.


Be grateful. You didn't want one anyway.

With all the fees added, the loans can easily cost taxpayers an APR (annual percentage rate) of 85% to 1,300%, according to the National Consumer Law Center. The loans are usually marketed to low-income taxpayers.


If you file your return electronically and have your refund direct-deposited, you can have it in five to 10 business days, at no cost. Those who want a check by mail usually have to wait up to six weeks. Kiplinger has a video about ways to get your tax refund.


Patience pays.


"Consumers who use refund anticipation loans will pay a hefty fee to get their own money," Dave Jones, president of the Association of Independent Consumer Credit Counselling Agencies, said in a news release earlier this year. "Exercising patience and creating a plan for the best use of the money can make a difference."


Last summer, the IRS said it would no longer provide tax preparers with a "debt indicator," which had told the companies making the refund anticipation loans whether the agency intended to withhold any of the anticipated refund for student loans, child support or other obligations.


The companies had used that information to determine whether to make the loans.


Block's competitors, Jackson Hewitt and Liberty Tax Service, will still make refund anticipation loans this year, but you still don't want one.


Too many people still opt to pay a hefty premium to get their own money a few weeks earlier. This is what John L. Stancil, an associate professor of accounting and tax at Florida Southern College in Lakeland, told

Theoretically, with electronic filing and quicker turnaround on refunds, the need for tax-anticipation loans has become obsolete. However, my observation is that they appear to actually be on the increase, as people become more and more impatient to get their refund.
 One sample I saw from a major company who provides these loans through tax preparers disclosed an annual percentage rate of 264% on the loan. All year long, taxpayers have made the government an interest-free loan, and now they are paying 264% to get their own money back a few days quicker.

If you find you are scheduled to receive a large refund, you should adjust your withholding and take control of your own money throughout the year rather than making an interest-free loan to the federal government.


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Jan 12, 2011 7:21PM
Good!  These things are a horrible blot on an otherwise respectable business.
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