Refund Advance? Resist the Temptation!

Tax season is coming up fast.  If you’re one of the millions of Americans who expect a hefty refund, you may be excited — impatient, even.

It’s important to have realistic expectations. If your refund includes the Earned Income Tax Credit OR the Additional Child Tax Credit, the earliest you’ll receive your refund is around February 27, even if you file on the earliest possible date in January. Congress passed a law two years ago requiring that those refunds not be processed until after February 15, to allow plenty of time for the IRS to gather and process the information it receives from employers around the nation.

The best way to get your tax refund quickly involves a few key steps:

  • File an accurate and complete return.  Don’t rush to file before you even have all the documents and information you need.
  • Be sure you claim only the dependents and credits you are entitled to.
  • File electronically. When paper returns are mailed in they take weeks longer.
  • Receive your refund via direct deposit.

What about refund loans? If you believe some advertising, or the sales pitches of some tax preparers, getting a refund advance is the easiest way to get your refund quickly. It may seem easy, but it’s actually risky.  If anything goes wrong with your refund, the loan will be due anyway, and how will you repay it?  If you can’t repay it on time, you’ll face additional fees and perhaps debt collection headaches.

A refund advance is a loan; the lender gives you money now, and you probably spend it. Then when your refund actually comes through, the loan is automatically repaid to the lender. But if the refund doesn’t come through as planned, the lender will turn to you for repayment, even if you no longer have the money.

What could go wrong with your refund? Actually, a lot could go wrong.

  • In some cases, people’s refunds are withheld in order to pay debts owed by the taxpayer — debts such as unpaid student loans, back child support, or other government debts.
  • In other cases, irregularity in paperwork can delay refunds. This might not mean that you don’t get your refund, but it might mean a delay, which could cause you some headaches with the lender.
  • One more situation when people don’t get the refund they expect occurs when there was an error in preparing their return. Perhaps you weren’t entitled to a particular credit, or perhaps you are not entitled to claim a dependent. You didn’t mean to cheat on your return, but due to an error somewhere in the process, your refund is less than expected.

Refund advance loans are advertised as no fee/ no interest loans. The catch, however, is that you are required to file your return through the tax service where you obtain the loan; their fees are often much higher than fees charged by a non-lending tax service. What’s more, if you qualify for free tax preparation, then there would be no reason to pay any fee at all.

Resist the refund advance, and be secure in your plans for using your refund!

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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