With tax season here, many people look forward to a refund. Some filers want the money as fast as possible, but experts warn against these quick fixes.
Many tax service providers used to offer refund anticipation loans as a way for taxpayers to get an advance on their returns. Now, a related program is widely replacing the offer, but experts say refund anticipation checks still include unnecessary fees.
A Refund Anticipation Check or RAC provides a temporary bank account for the IRS to directly deposit a tax refund. The bank can then issue a check to the taxpayer.
Tax services, like H&R Block, market the RAC as a way to deduct the preparation cost from your return, for a price.
Katy Hudson, Consumer Credit Counseling Services President, says, "As long as you understand the fees, let's put it that way."
The RAC is designed for taxpayers, without bank accounts, to get direct deposit refunds, which is up to six weeks faster than getting them by mail.
In some cases, people who can't afford the cost of tax preparation up front are using the program, making it similar to a Refund Anticipation Loan.
"It's still the same animal, it's just packaged differently. Before people weren't aware that it was a loan, so they did do away with that. They had to restructure how they were selling it to the consumer because there is interest, there are fees associated with it that people need to be aware of," said Hudson.
A study conducted by the Treasury Department shows refund advance program users are most commonly low income, young adults who use paid preparers. Taxpayers in this group would likely qualify for free tax assistance.
Hudson said, "A lot of times when you have your taxes prepared by someone, you may have already overpaid to some extent, in fees and things like that. So, you want to shop around when you're getting your taxes done anyways."
Hudson said taking advantage of tax offers, usually isn't the way to go. But if you do, know what you're getting into.
"They have to disclose all the fees so make sure you carefully read any papers that you sign, giving them rights to your refund, because that's exactly what you're doing," said Hudson.
Free tax assistance is available through the VITA program, for people who make less than $51,000 a year. AARP and non-profit organizations also offer free services. For more information about free tax help call 211.
