Having an advance on your tax refund generates hidden fees: report

By Samuel Gonzalez

Nov 27, 2024, 12:47 PM EST

When talking about finances and taxes, patience plays a key role in the well-being of our pockets. It is true that if you file your returns yourself and get a refund, you must wait for the times established by the Internal Revenue Service (IRS), no matter what. On the other hand, if you rely on a tax preparation service, you could receive an advance on your refund. Well, a recent report indicates that many taxpayers are unaware that they spend millions of dollars in hidden charges for this advance.

The Treasury Inspector General of the United States Tax Administration presented a report last week, which indicates that almost 16% of the country’s taxpayers paid more than $842 million in fees to receive early tax refunds in 2023.

Tax filing services typically offer two types of services in this regard: loans for an advance refund or a check advance of this tax refund. Either generates costs that many taxpayers are unaware of. According to the government agency, About 96% used a refund advance check, known as a RAC; while another 4% used a repayment advance loan, known as RAL.

For many taxpayers who are impatient or have special financial needs, receiving their refunds before anyone else may seem attractive. However, the government agency found that many of them were not clear about the rates they are charged for this service.

According to Inspector, although the seven tax preparation companies, which represent almost 80% of the total refund products, “largely comply with applicable guidelines, not all information was clearly available to consumers“.

“In some cases, rates and cost information for these products were not clearly advertised and it was necessary to read the fine print or go through several pages to find some information about costs,” he added.

According to the report, RAC fees ranged from $25 to $55 for the 2024 filing season. The average refund for these taxpayers was $3,841, indicating that the cost of the RAC was approximately 1% of the total refund. The average reimbursement for a fee-based RAL was $6,696.

Refunds can come with prepaid cards, with associated fees that can vary widely, and many charge out-of-network ATM fees, the Consumer Financial Protection Bureau (CFPB) warned.

“Many taxpayers receive their refunds from the IRS within 10 to 21 days,” warns the CFPB. “Waiting a week or two can save you money”.

What’s more, the CFPB recalled that many taxpayers qualify to receive free assistance from IRS-certified tax preparers. As these are free services, they do not offer early refundsHowever, as we mentioned at the beginning, patience will allow you to receive your full money without having to pay an extra fee for receiving it sooner.

If you are interested in finding a volunteer in your community or onlineyou can review any of the institutions that we present below:

On irs.gov, look under “Free Tax Return Preparation”
On AARP.org, go to the “Tax-Aide Locator” section.
At GetYourRefund.org, you can file your taxes online for free
At MyFreeTaxes.com, you can prepare your own return with free assistance

We reiterate that in these services you do not get your refunds before anyone else, but you will not have to pay for the service either, as long as you qualify for it. Remember: patience in finances will save you hundreds or thousands of dollars.

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