Refund Anticipation Loans
Written by: Tony Robinson
Those are the words that every taxpayer would love to hear, yes,
you're receiving an income tax refund. For many individual
taxpayers those refunds can be obtained through Earned Income
credit, a real refund of overpayment of tax, or through an
overpayment from previous years. Once you determine you're
receiving a refund, there are several options for actually
putting that money in the taxpayer's hands.
Although this sounds like the perfect end to a wonderful tax
year, taxpayers are paying around $2 billion annually in order
to receive a loan against their anticipated refund of tax in one
day. The interest rates charged by many tax preparers and
lending institutions can run as high as 2000 percent, and the
taxpayers aren't even blinking an eye.
Since the advent of the computer age, and the great invention of
the internet, the Internal Revenue Service has been fairly quick
to react to the benefit of electronic filing. The returns are
filed much faster, refunds are made faster, and money due the
IRS can be obtained faster. Let's take a minute to examine the
refund anticipation loan, and the advantages and disadvantages
of using this method for filing.
For many taxpayers, and families trying to make ends meet on
limited incomes, receiving those W-2s can be a very satisfying
and thrilling time. Many of these families have struggled all
year to make ends meet, borrowing money to sometimes fill in the
emergency needs. Now, finally the opportunity to get back a lump
sum distribution of needed refund money has arrived. Quick
refund anticipation loans, and the tax preparers that offer
them, have seemed like a dream come true to many individual tax
payers. They tend to overlook the exorbitant fees, and the costs
associated with these refund anticipation loans or RALs, and
march right into the tax office, seeking their money.
Here's where the refund anticipation loan can become a problem:
if for some reason, your anticipated refund should not arrive as
anticipated, and then you, the taxpayer are responsible for
repaying the tax preparer, or their lending institution. What if
you are once again without any excess money? This can be a
problem. For example, if you owe back taxes, back child support,
or liens and judgments, you can't qualify for the refund
Many individual companies, such as check cashing services,
payday loan companies, and even rent-to-own centers are
partnering with tax professionals to offer the service either
in-store, or the opportunity to make it a part of a purchase
proposition. The individual companies that are partnering with
tax preparers are hoping to gain sales dollars by having the
taxpayer in house when they receive their money.
For individuals who choose to go to some of the more established
professional tax preparers such as H & R Block or Jackson
Hewitt, they will pay even higher fees to get the return filed
and receive a refund anticipation loan. The national average was
around $250 for the 2004 tax year, and may reach new heights
The sad fact is, that many of the taxpayers who seek
professional tax preparers to complete their tax return, could
use the VITA service, or Volunteer Income Tax Assistance Centers
and receive an electronically filed return for free. The refund
is back within two weeks, sooner if you have a checking or
savings account, and it doesn't cost the taxpayer anything.
The rapid refund, that is rapidly replacing the standard paper
filing, is an electronic method used for filing your tax return,
and allowing you to receive your refund in about 10-14 days.
Much faster than the six weeks it used to take. There are
usually no excess fees attached to this type of filing, and
returns may be filed for free through many local, public access
Most often, the individuals who apply for and use the refund
anticipation loan are recipients of earned income credit, and
their refunds are usually well into the thousands of dollars.
The refund anticipation loan can be processed in as little as 3
hours, and back in the hand of the tax payer by late afternoon;
this is provided everything works exactly as planned. The higher
interest rates charged by the bank product providers, and the
higher processing fees charged by the tax preparers, equate to
less money for the tax payer, but many of these individuals
don't even blink when told how much it will be to process their
return, they just want the refund immediately. This is just one
more example of the instant gratification upon which our society
chooses to operate.
About the author:
Tony Robinson is a Webmaster and International Author. Visit
http://www.tax-portal.com/ for his tax tips.
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