As refund loans are more heavily marketed, I’m waiting for an ad that shows someone walking into a tax office on December 31st with their dog and walking out with a check in their hand and another in the dog’s mouth. If you have a refund coming, who wouldn’t want it as soon as possible? BTW, the absolute fastest way to get your refund appears at the end.
Let’s start with the free ways to accelerate your refund (some tax preparers still charge for efiling and direct deposit - my company doesn’t) – starting the clock ticking from the time you have everything you need to file:
1) Efile, if possible*: The IRS will acknowledge electronically filed returns within 48 hours (I generally get acknowledgements the next day). With snail mail, your return probably hasn’t even arrived at the IRS by then (let alone been open and processed).
2) Direct Deposit: The IRS efile refund Cycle Chart show direct deposits sent between 8 and 14 days after the return is efiled (it can take a day or two to move through the ACH system). Paper Checks are scheduled to be mailed between 15 and 21 days after the return is efiled, and it will take at least a day or two for it to move through the U.S. Postal System. Of course, the IRS cannot guarantee a specific date – it’s not all bad, though, some of my clients tell me their deposit came in ahead of schedule!
Anything faster is some form of a loan – a rather expensive one (see How Much Does an Refund Anticipation Loan Cost).
Cost of a Refund Anticipation Loan (generally received within 1-2 days): $62-102 (2007 figures) – remember this is a 1-2 week loan..
Cost of an Instant Refund Anticipation Loan (received when you’re filing your return): fees above plus $25-55 (2007 figures) for a 1-2 day loan.
Cost of a “paystub” loan based on your anticipated refund (can be received prior to receiving you W-2s, etc, and filing your return): The cost depends on how long the loan is open – for a 1 month loan (between receiving proceeds and filing and paying back the balance), the annual percentage rate can be as high as 177%. Some loans require that your refund be paid directly to the line of credit (which the tax preparer will do, for a fee). According to 2006 data, the due date for the loans (Mid February) may force taxpayers to apply for a traditional Refund Anticipation Loan to pay back the paystub loan on time (one lender appears to require a bank product, with additional fees, in all cases).
Like any financial product, the various bank products based on your refund have both costs and benefits. Not only are the costs of these products extremely high, but in many cases, the extent of them is not readily apparent. They are also extremely complex, and your tax preparer, even with the best of intentions, may not themselves be aware of the full implication of some of these products, let alone able to advise you of them.
The Fastest Way to Get Your Refund
Your refund (or balance due) is the difference between what you paid in throughout the year, and what you actually owe for the year. Which means that if you are receiving a refund, you have given the IRS more money than you were required to throughout the year.
The fastest way to get your “refund” is to carefully plan your withholding and estimated payments so that you have the use of that money through out the year, rather than loaning it to the government, interest free, and then waiting for them to send it back. And I know an excellent tax preparer who can help you do just that :-).
* Many, but not all taxpayers will be able to e-file