For many, springtime means relief in the form of a tax refund. But if you need money right now, waiting for the IRS to issue your refund might not be ideal.
That’s where a tax refund loan comes in. While these loans can get you early access to funds, they can be expensive and unnecessary.
“Consumers should carefully consider the advantages of having quicker access to the money versus the costs incurred to obtain the loan,” says April Walker, lead manager for tax practice and ethics with the American Institute of Certified Public Accountants.
Read below to learn how to get a tax refund loan, where to find one and if it’s the best option for you.
What Is a Tax Refund Loan?
When you file your tax return, you may end up owing the government money or getting a refund from the government. If you are due a refund, you can usually get the funds within three weeks of filing your taxes if you e-file and choose to receive a direct deposit.
But taxpayers who need money quickly may be able to take out a tax refund loan, also known as a refund advance loan or a refund anticipation loan. This is a product that provides you with part of an expected tax refund faster than the IRS can send the money.
This kind of loan often comes from tax preparation companies, but you may also see tax refund loans from other sources. Be sure to evaluate the loan’s costs and the company’s reputation before pursuing a tax refund loan.
[Read: Best Personal Loans.]
How Do Tax Refund Advance Loans Work?
You cannot get a tax refund loan from a bank directly. Instead, tax preparation companies often offer refund advance loans.
Customers use the companies to file their taxes and receive loans covering a certain amount of their expected tax refunds. Then, once the government sends your refund, the company will take any fees and other charges. You will then receive the remainder of the refund.
Expect to receive only a percentage of your estimated refund as a loan. For example, if your anticipated refund is between $500 and $999, TurboTax will only lend you a maximum of 50% of the refund amount.
Most tax refund loans are available starting in December or January, says Robert Farrington, founder of The College Investor. This can let taxpayers get access to funds sooner than if they waited for the IRS. The estimated day you will be able to file your 2023 taxes is Jan.18, 2024.
Farrington says tax anticipation loans are generally geared toward taxpayers who are eligible for the earned income tax credit or the additional child tax credit. If you qualify for one of these two tax credits, the IRS says you could expect to get your refund by Feb. 28 if you filed online, elected to get your refund via direct deposit and had no problems with your tax return.
[Read: Best Low-Interest Personal Loans]
What Are the Pros and Cons of Tax Refund Loans?
Pros
— Can get access to funds sooner. If you need funds sooner than the IRS can get you your tax refund, a tax refund loan can help.
— May be less expensive than other short-term loans. If you are considering a payday or title loan, a tax refund loan may be less expensive.
Cons
— Can be expensive. Refund anticipation loans may come with high fees. Even if a company says they offer a 0% annual percentage rate on a tax refund loan, they may find other ways to collect fees. “A lot of companies make you put the refund on a prepaid debit card, so the loan doesn’t have a fee, but the prepaid card has a fee,” Farrington says.
— May owe more than you expect. “Also note that it is possible that the IRS will adjust your refund based on errors in the return or other adjustments, such as past due taxes, and in this situation, you would still be liable for the entire amount of the loan,” Walker says.
— May not qualify. If your return is complicated or you don’t meet a company’s minimum refund amount, for example, you may not be eligible.
Where Can You Get Tax Refund Loans?
Tax preparation companies often issue tax refund loans. Using one of these services could get you funds sooner than you’d get your tax refund, but make sure you understand the costs. Keep in mind that you may be on the hook for a tax preparation fee when you use one of these companies, and you will need to meet eligibility requirements.
Jackson Hewitt
Jackson Hewitt will offer two types of tax refund loans at participating locations between December and February 2024.
| Loan Amounts | Early Refund Advance loan: $100, $300, $500 or $1,000.
No Fee Refund Advance loan: $250, $500, $750, $1,000, $1,500, $2,500,$3,500, $4,500 or $6,500. |
| Time to Fund | One to five business days after approval for direct deposit, or within 24 hours of approval if you are using a Serve Card, which is a type of prepaid debit account. |
| APR | Early Refund Advance loan: 35.53%.
No Fee Refund Advance loan: 0%. |
| Deadlines | Early Refund Advance loan: available Dec. 11, 2023, through Jan. 14, 2024, at select locations.
No Fee Refund Advance: available Jan. 2, 2024, through Feb. 11, 2024, at select locations. |
H&R Block
In 2024, H&R Block will offer a no-interest refund advance loan issued by Pathward at participating offices.
| Loan Amounts | $250, $500, $750, $1,250 or $3,500. |
| Time to Fund | Typically, you will get loan funds via a prepaid Mastercard the same day you apply. |
| APR | 0%. |
| Deadlines | Available Jan. 2, 2024, through Feb. 29, 2024. |
TurboTax
TurboTax offers tax refund loans through lender First Century Bank.
| Loan Amounts | Up to $4,000. |
| Time to Fund | TurboTax says most people get their funds within four minutes. |
| APR | 0%. |
| Deadlines | The loan is available through Feb. 15, 2024. |
[See: Best Personal Loans for Credit Card Refinance.]
Alternatives to Tax Refund Loans
Want to avoid taking out a tax refund loan? Read below to see other alternatives that may be less costly.
Take Out a Personal Loan
If you need money quickly, you can turn to a personal loan. A personal loan can be used for a variety of reasons, including for bills and emergency expenses.
Interest rates on personal loans generally range from 6% to 36%, depending on your credit score, loan amount, repayment term and more. In general, consumers with higher credit scores may qualify for lower interest rates than those with lower scores. Personal loans usually have fixed interest rates, so the monthly payment will stay the same during the term.
Loan amounts can range from $1,000 to $50,000 or, less often, up to $100,000.
Use a Different Bank Account
Some banks may release tax refunds earlier than others. For example, Chime and Varo both say they can provide tax refunds up to five days early.
File Your Taxes Quickly and Correctly
The most obvious solution is to file your taxes as soon as possible and wait for the refund to come through. According to the IRS, most taxpayers receive their refunds in fewer than 21 days. If you can wait a few weeks, you will get your money without paying any unnecessary fees.
To have your refund issued within 21 days, you have to file the tax return electronically instead of mailing it in. It can take four or more weeks to process mailed returns. Also, you should have the refund deposited directly to a bank account instead of asking for a check.
“If you ask for a paper check, it will take another week or two to get that check to you,” Farrington says.
You’ll also want to be sure to avoid mistakes. “Doing everything you can to ensure the information on the tax return is correct is the easiest way to avoid a delay in tax return processing and the issuance of the refund,” Walker says.
Also keep in mind that there are free ways for many taxpayers to get help with their taxes. These services can save you money on tax prep fees, while still ensuring you get your refund as quickly as possible.
If your adjusted gross income is $73,000 or less, you can file taxes for free with several tax software programs. Eligible taxpayers can also be able to get help through the Volunteer Income Tax Assistance or Tax Counseling for the Elderly programs from the IRS.
Change Your Tax Withholding
If you often get a large tax refund, you can fill out a new W-4 form to reduce your withholding. This can mean more money available in your regular paycheck.
Talk to your employer’s payroll or human resources department to change your withholding. You can use the official IRS withholding calculator to figure out how to break even on your tax return. Just remember that you won’t receive a large tax refund next year.
This strategy won’t help you access your current tax refund faster, but it will ensure that your money is spread out more evenly in the future.
More from U.S. News
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What Is a Tax Refund Advance? originally appeared on usnews.com
Update 12/12/23: This story was published at an earlier date and has been updated with new information.
