The word tax alone is enough to send a lot of people running for the hills. And as if filing a tax return does not cause people enough undue stress, it is becoming more and more stressful to choose a refund option. While most taxpayers are looking to get their refund in the fastest, most affordable way, few of them are familiar enough with their options to make an informed decision.
There are two things to consider when choosing which refund option is right for you. The first is how much money you are willing to spend to expedite the refund. The second is how fast you truly need the money.
If your refund money is needed immediately you are left with only one option: bank products. Bank products are very expensive and not usually available to those with poor credit history. The two most common bank products available to you are the Refund Anticipation Loan (RAL) and the Instant Refund Anticipation Loan (IRAL).
Both of these options are essentially loans that are applied for through your tax preparer at the time your return is filed. The bank will set up an account in your name which will be used later to collect your actual refund from the IRS. If the loan is approved the preparer will issue you a check for the amount of your refund minus their fees and the bank fees which include interest charges. These fees can range from $50 – $350 or even higher depending on the amount of your refund. IRAL checks are issued instantly, a same day service, if you will. RAL checks are normally issued within 48 hours. The IRS will then issue your refund to the account set up by the bank, who will then debit the account for repayment of the loan.
It should be noted that if the loan is denied your preparer will issue your check after the bank has received the refund from the IRS.
One note of caution: In the event that the bank does not receive the full amount of your refund from the IRS, for whatever reason, you are responsible for any amount left outstanding.
One benefit of bank products: All fees are deducted from the amount of your refund. There is no upfront cost, including preparer fees. This is a great help to those who are short on cash.
A more cost effective, but less rapid refund option is to take advantage of the IRS Efile program. Most tax preparers offer this service to their clients for a nominal fee, some do not charge at all for this service. The Efile program allows your return to be filed with the IRS electronically which results in a much faster processing time. Your refund can be deposited into your bank account in as little as 8-14 days. As a matter of fact, this is the same process in which the banks receive their money when you choose a bank product.
Efile is now available to everyone, not just tax preparers. Check out the Free File link on the IRS website (irs.gov). Here you will find a list of affiliates who allow you to prepare your own return on line. Once you prepare your return you will be allowed to Efile, sometimes both your Federal and State returns. This usually costs anywhere from $10 – $35, but in some cases it can be free.
One note of caution: If you use the Efile option and choose to have a check mailed to you it takes one week longer than it does for the refund to be deposited into your account. A refund cycle chart is available on the IRS website which gives you the dates of depoits and check mailings.
One great tip for Efile: If you file your return before noon on Wednesday your refund will be deposited into your account on the following Friday. (As long as it not rejected for any reason.)
These are the most popular refund options available today. It is always a good idea to talk to your tax preparer about the refund options that they offer and recommend. In any rate, I am glad to live in the information age where data can be sent in a matter of seconds and refunds sent in a matter of days. Good Luck!