If you find after preparing your tax return that you’re going to get a refund, you don’t have to wait for the IRS to send you the money. A wide variety of financial services companies – primarily those that do tax returns – offer “tax refund anticipation” or “tax refund advance” loans. Some offer zero percent interest, but you must pay them to prepare and file your returns.
Understanding how tax refund loans or advances work and how to borrow from your tax refund will help you choose the right one for you so you can get your money quicker.
What Are Tax Refund Loans?
If you have a tax refund coming, lenders know the IRS is not going to stiff you, so they will lend you the money you have coming, explains credit reporting agency, Experian. These companies either make money by earning interest on the amount of the loan, or by earning fees for preparing your taxes.
Your tax preparation company will require that you sign documents authorizing the IRS to send your refund to your tax preparation company or other lender. This way, the lender knows it will get its money.
Consider Also: Form 1040: What You Need to Know
Can I Do My Taxes?
If you do your own taxes and go to a lender (such as your bank or credit union) showing them that you have a refund coming, they will have to trust that you did your taxes correctly, or have their expert tax staff review your filing so you can borrow from tax refund money. They will also have to rely on you to get your refund later and use the funds to pay them back. That’s why many lenders won’t do this.
Some companies will give you a loan based on you doing your own return, but you probably won’t get a zero percent loan. You might also get your money in the form of a prepaid debit card that comes with a fee.
Consider Also: Where's My Tax Refund: An Easy Guide
How Tax Refund Loans Work
A tax refund loan sends your refund directly from the IRS to your lender. The steps include:
- Hiring a tax preparation firm that offers loans, or using a refund company that accepts your self-filed return
- Determining you are getting a refund
- Signing a loan agreement
- Receiving your loan
If all goes well and your lender gets your refund from the IRS by the time agreed, you have fulfilled your loan obligations.
You can do an online search for “tax refund anticipation loans” or “who offers tax refund loans?” and find a variety of lenders. H&R Block, TurboTax and Jackson Hewitt offer 2021 refund loans up to $4,000 with zero interest, reports BusinessInsider.com. You don’t automatically get the full refund amount, however – the tax preparation company makes that call.
You Rely on the IRS
Find out from any lender what happens if the IRS delays accepting your tax return. This could happen because of pandemic-related staff shortages or if the IRS has a question about your return and needs to contact you. If your tax preparer makes a mistake, you shouldn’t be penalized.
Make sure to have your tax preparer send/file your returns (they’ll do it electronically) so you are not responsible if the U.S. Postal Service or a private carrier you use (like UPS, FedEx or DHL) loses or delays your mailing/shipment. If you do send a paper return yourself, send it certified or registered mail so you can track and confirm it arrived.
Steve Milano has written more than 1,000 pieces of personal finance and frugal living articles for dozens of websites, including Motley Fool, Zacks, Bankrate, Quickbooks, SmartyCents, Knew Money, Don't Waste Your Money and Credit Card Ideas, as well as his own websites.