Avoid Refund Anticipation Loans This Tax Season

Many taxpayers are receiving W-2 forms and other tax documents in the mail. While some people are dreading having to prepare their annual tax return, others are looking forward to getting a big, fat refund – especially if they are unemployed or experiencing financial hardship.

Anyone looking forward to getting an income tax refund this year may be tempted to use one of those rapid refund services to get their money quicker. But taxpayers are better off skipping refund anticipation loans and just waiting for their money.

Loans Prey on Low-Income People

Many of the people who rely on refund anticipation loans have low or moderate incomes. They are socked with fees to receive personal loans to tide them over until they receive their tax refunds. The typical cost of one of these loans is around $250, according to the Wisconsin Department of Revenue. More than 8 million U.S. taxpayers lost about $800 million from their refunds last year because of these loans, according to Consumer Affairs.

Skip Personal Loan and File Electronically

Taxpayers usually receive their refunds in two weeks or less. For most people, filing electronically and having refunds direct deposited in a bank account speeds up the amount of time it takes to receive a tax refund. It doesn’t make sense to pay a fee for a loan or for a refund anticipation check when a refund can be direct deposited in a bank account in such a short amount of time.

More Fees for Refunds

Refund anticipation checks, which usually cost about $30, should also be avoided. About 12 million taxpayers paid about $336 million in fees to receive refund anticipation checks last year.

Taxpayers who don’t have a bank account should open one before filing their taxes. There are many free or low-cost bank accounts that don’t require a minimum balance. In many communities, free tax help is available from various agencies. Volunteers can help prepare and file returns electronically. 

Change Tax Withholding

Finally, it’s important to note that any taxpayer who is receiving a huge tax refund may have too much of their income withheld from each paycheck. Taxpayers can change their withholding by filling out a new W-4 form, which is available from the Internal Revenue Service (IRS). 

Anyone who receives a large tax refund has basically given the federal government an interest-free loan during that tax year. Changing withholding allows taxpayers to keep more of their income throughout the year. The IRS has a calculator to help taxpayers figure out how much of their paychecks to have withheld.

Similar Posts:

• Predatory Lending Practices: Refund Anticipation Loans
• Quick tax return
• Are Compensatory Damages Considered Taxable Income?
• Where Should You Put Your Emergency Fund?
• Cash Advance To Start The New Year