Tax Refund Advance

Tax Return Advance – Refund Money Fast

When people have completed their tax return and realize that they will be getting a tax refund, many seek something like a Tax Return Advance; often called a tax refund anticipation loan. In this informational, we will take a look at what this is and whether it is a good idea to take advantage of an advance on your tax return refund.

Each year, my friend Jimmy has his tax returns prepared by H&R Block. Since he typically has too much money withdrawn from his paycheck each pay period, Jimmy is told that he is due a tax refund from the IRS. Then, they offer Jimmy something called a tax refund advance loan; a tax return advance loan on his pending tax refund.

What is a Tax Return Advance?
This is a loan against your pending tax refund you are due from the IRS. It is also called a tax refund anticipation loan. This is a way for you to receive your tax refund sooner almost instantly. The loan is a bit like a payday cash advance but your tax refund will be used as collateral rather than a paycheck. This sounds like a good idea, does it not? “Money in the hand” can be a very helpful thing, especially if you have a pending financial emergency. Naturally, there are some fees associated with a Tax Return Advance. But if you desperately need some money in a hurry this is a reasonable option.

As with everything in life, nothing is for free. What would be the incentive for someone to simply pay you your tax refund advance and get nothing in return? There is no incentive and that is why the tax preparers and the payday loan companies, who also provide these types of loans, provide you this service for a fee, sometimes a very large fee!

Let’s look at what is really happening when you receive a tax refund advance: You are borrowing your own money! Do you really want to pay to borrow your own money?

How much are you willing to pay to borrow your own money? Let us say that you are due to receive a refund of $1,000 dollars as a refund from the government. Your tax preparer, who did your taxes, then offers to pay that money right there and then, minus what he will tell you is a “nominal” loan fee.

This “nominal” loan fee varies per company. Sometimes, it is about $30 but other times it can reach more than $100. Many companies also charge administrative fees up to $50 and electronic transfer fees. All of this may amount to between $100-$200. If you are due $1,000, and you pay $100 to get it sooner, you are essentially paying 10% on your money in one day.

Plus, in today’s electronic environment, you can receive your tax refund electronically in about 14 to 28 days. Can you wait or not?

Unless you have an absolute emergency, you probably do not want to elect to go with a tax refund advance loan.

You can potentially avoid this situation next year by changing your withholdings so that the government does not keep all of your money and you will have it accessible throughout the year rather than taking out a Tax Return Advance.