Feb 2010
3
A rapid refund or Refund Anticipation Loan (RAL) is money borrowed by a taxpayer
from a lender or tax preparer agency based on the taxpayer’s anticipated tax refund.
You are applying for a loan in exchange for getting your tax refund faster or borrowing against your own money for a fee. Rapid refunds are similar to payday loans. A RAL
is advertised to taxpayers as the easiest and quickest way to get your tax refund.
You may get your tax refund faster if you file electronically which is much cheaper than getting a RAL. Many tax preparation companies market RAL's to taxpayers that qualify for the Earned Income Tax Credit (EITC) because the EITC ensures that an eligible taxpayer will receive a refund from the federal government.
H&R Block generated 2.9 million refund anticipation loans in 2009. According to the I
RS EITC taxpayers lost 7.8% of their tax refund due to RAL fees in 2006. Here are
10 things to consider before applying for a rapid refund:
- A rapid refund may require paying bank fees, loan fees, and a tax preparation fee which could range from $90-$1,500 depending on the amount of the refund
- Ask for a disclosure of all fees you will be charged before signing the loan agreement
- Beware of RAL scams. Find out if the company is qualified to prepare taxes
- Ask how many customers have been audited and what process is in place to help customers have been audited
- If you feel you are being rushed or have a gut feeling that you should not get the RAL then walk away
- Do your homework before going to get your taxes prepared.
- Be cautious about deductions you are eligible for that you never heard of. To be safe, ask them to write down all the deductions you are eligible for, do your research and find out if they are valid then you can go back to the tax preparer office and proceed with filing the RAL.
- If you get audited, your rapid refund is denied and you will immediately have to pay back your tax refund or be charged interest and penalty fees by the IRS for the amount owed.
