Should You Apply for a Tax Refund Advance?
Some tax preparers are offering loans. Here’s what you need to know before taking one.
If you expect money back from the IRS this tax season and you’re looking for a fast way to get cash, a tax refund advance could work for you. Just be aware of how they work to avoid unexpected costs.
Four major tax-prep companies-storefront preparers H&R Block, Jackson-Hewitt and Liberty Tax; plus the do-it-yourself service TurboTax-are offering tax refund advances, essentially loans based on your expected federal refund. TaxSlayer, another online DIY service, will be rolling out its version later this month, a spokesperson says.
You can find tax refund advances of up to $3,500 that are free of fees and interest. You also can get bigger advances, up to $7,000, but you will pay a hefty interest of more than 35 percent for those larger loans.
To get an advance, you must provide enough information on last year’s income to prepare your return. At Jackson Hewitt, you can even get a tax refund advance of up to $400 before your W-2 arrives as long as you can show a pay stub or another valid proof of income, a spokesperson says.
Taxpayers who take a tax refund advance typically get a portion of their owed refund within 24 to 48 hours of applying for it, the companies say. Consumers can apply now, without waiting until Jan. 28 when the filing season starts. (Early-bird taxpayers who don’t take a refund advance and file electronically on Jan. 28 can expect their full IRS refunds by mid-to-late February. Tax refunds will go out as usual, the partial government shutdown notwithstanding, the IRS says.)
How Tax Refund Advances Work
You may want to hustle if a tax refund advance interests you. Most of the companies offering this product have a mid- or late-February application deadline. TurboTax says its Feb. 15 offer deadline is subject to change but didn’t offer details.
And before you take advantage of these products, make sure you understand how they work and what to watch out for.
For instance, the amount of the advance you can get depends on which tax preparer you use and how big a refund you’re expecting, among other factors. H&R Block is offering advances of up to $3,000 per federal tax return. Jackson Hewitt will offer up to $7,000, and Liberty Tax offers as much as $6,250. TurboTax is offering advances of up to $1,000 per federal return, and TaxSlayer says it will offer the same.
The main requirement in all cases is that you must get your taxes done by the company offering the refund advance. To apply for an advance from the big three storefront companies, you’ll need to go to the tax preparer’s office. With TaxSlayer and TurboTax, which have no brick-and-mortar presence, you handle the application process online.
The tax-prep companies themselves don’t lend you the money. A bank that works with the tax company lends you the money, which is usually loaded onto a new prepaid card. When you receive your tax refund, the advance amount is automatically deducted from your refund and funneled to that bank, effectively paying back your loan for you. The remainder of your refund is usually loaded onto the prepaid card.
Some of the tax refund advances-notably Jackson Hewitt’s Go Big Refund Advance and higher-sum Easy Advances from Liberty Tax-do charge interest, up to nearly 36 percent. And while the time period during which you’ll pay that interest is likely to be short-just until your refund comes-it still means you’ll owe more to the company than you borrowed. Jackson Hewitt says it won’t charge interest for longer than 45 days, and notes that most clients get their refund and can pay back their loans within 24 days. But even a 24-day Go Big Refund Advance would cost $ on a $2,000 loan, the company acknowledges.