By Susan Tompor
Detroit Free Press
WWR Article Summary (tl;dr) As columnist Susan Tompor points out, if you’re owed a $3,000 tax refund, there’s no way you’re getting a $3,000 refund advance loan. Yet the big number is what consumers will see first.
Detroit Free Press
People who are looking for fast cash to pay holiday bills, unexpected car repairs or skyrocketing heating bills are being bombarded with TV ads, window signs and other pitches for tax refund advances.
Actor Jon Hamm, wearing bib overalls, laments being stuck after his old truck breaks down in a Dust Bowl setting in an H&R Block commercial.
“There’s got to be a way to get us some money fast,” Hamm’s character says. “If only there was some kind of advance we could get on our tax refund.”
The pitch is tempting, especially when the commercial says up to $3,000 could be available in an advance.
Jackson Hewitt, which has its own refund advance product, noted that 43 percent of millennial taxpayers polled indicated in a recent survey that they plan to use their tax refund to pay holiday debt, compared with 31 percent of the general population.
The refund loan products are relatively new. Consumers must dig into the details to understand what kind of loan they might expect and exactly what’s being offered.
The advance loans are made by banks, and secured by and repaid directly from a consumer’s tax refund. As a result, the size of the loans will be limited.
So if you’re owed a $3,000 tax refund, there’s no way you’re getting a $3,000 refund advance loan. Yet the big number is what consumers will see first.
Through Feb. 28, a 0 percent interest loan for up to $3,000 is being offered to current and new customers at H&R Block. If approved, H&R Block says, clients will typically have access to money the same day they apply.
Jackson Hewitt has a product that promises up to $3,200, up from a maximum of $1,300 last year, for a 0 percent interest loan.
Liberty Tax is promoting what it calls “the largest tax refund advance offer in the industry” with its Easy Advance Loan of up to $3,250 through Feb. 28. No fees or interest are associated with the loan.
Tax refunds, of course, can be the single biggest financial payout for many consumers each year.
The demand for refund advance loans is being driven up after a crackdown to combat tax refund fraud.
The Internal Revenue Service is now required to hold back some tax refunds for those claiming the Earned Income Tax Credit or the Additional Child Tax Credit. Last year, about 15 million people who filed early in the season faced those delays.
The IRS warns tax-return filers that refunds that include such credits will not show up in a taxpayer’s bank account or debit card until at least Feb. 27 for those choosing direct deposit. But there could be more delays, if there are other issues with the tax return.
An important point: The delay applies to the entire refund, not just the portion of refund money that’s associated with these credits.
So the IRS advises consumers not to bank on getting a refund by a certain date, especially when making major purchases or paying bills.
If you feel you cannot wait, well, you’re going to be eager to listen when someone starts talking about ways to get fast cash. Here are some points to consider:
–– Everyone isn’t getting a 0 percent loan of $3,000 or so.
Liberty Tax, for example, notes that to be eligible for the maximum $3,250 loan amount, you’d need an expected federal income tax refund, minus authorized fees for tax preparation services, that amounts to at least $5,095.
The available loan amounts at Liberty Tax are $500, $800, $1,300, and $3,250.
The actual loan amount will vary based on the expected refund amount, ID verification, eligibility criteria and underwriting.
The refund advance loans at H&R Block are in four different amounts, $500, $750, $1,250 or $3,000, depending on what you’re qualified to receive.
H&R Block said a client needs to be due a federal income tax refund of at least $1,000 to be eligible for a Refund Advance and meet underwriting criteria.
The average federal income tax refund last year, according to the IRS, was $2,782.
Jackson Hewitt customers can get loans available in amounts of $100, $200, $500, $750, $1,000 or $3,200.
The advance loan is offered to Jackson Hewitt clients by MetaBank in Sioux Falls, S.D. MetaBank said it will make up to $750 million in interest-free refund advance loans in 2017, up from the available $450 million last year.
A spokesperson for MetaBank said the bank works to provide the highest loan amount possible, and in many cases the loan amounts are more than 50 percent of the refund due.
The refund advance loan is offered to H&R Block clients by BofI Federal Bank in San Diego.
The loan at Liberty Tax is offered by Republic Bank & Trust Company, based in Louisville, Ky.
–– You cannot go online to get one of these advances.
You’re going to need to visit a tax professional and have your taxes prepared at a participating H&R Block, Jackson Hewitt or Liberty office to obtain any of these loans. Jackson Hewitt also has tax preparation offices in Wal-Mart stores, too.
–– No fee does not equal no cost. Most of these promotions for refund advances highlight that there are no finance charges and no loan fees associated with the loans.
But this is key: Any tax preparation fees would apply. So you want to try to understand what you might pay to get your taxes prepared at a given location.
H&R Block notes that you can file a federal 1040 EZ free beginning through Feb. 28.
But many people cannot file the EZ form. For example, you cannot file an EZ if you claim dependents. And you cannot file the EZ form if you claim any credits other than the earned income credit.
And H&R Block notes that additional fees apply for the Earned Income Credit and certain other additional forms, for state and local returns, and if you select other products and services.
Don’t forget there are now plenty of ways for many people to file tax returns without paying a charge. Free File tax software, for example, will be available at www.irs.gov for many households with incomes less than $66,000.
Some lower- and moderate-income consumers could end up paying for tax preparation services simply to get one of these advance loans _ even when they might qualify for free tax services via volunteer sites, such as the Accounting Aid Society in Detroit.
Chi Chi Wu, staff attorney at the National Consumer Law Center, said some mystery shopping tests have shown that tax preparation fees can be $400 to $500 for some lower or moderate income taxpayers who qualify for the Earned Income Tax Credit.
The tax preparation fees typically are taken out of your refund when you take out a refund advance loan.
–– Is this really a way to get same-day cash?
Jackson Hewitt says the refund advance money is available minutes to 24 hours after completing a tax return with Jackson Hewitt if the money is loaded on the American Express Serve prepaid card. It’s often one hour. But you do have to watch for any fees associated with using a prepaid card.
If you choose direct deposit into your bank, the money could be available within three days. The loan is automatically repaid once the tax refund is received.
-Do you need to rush?
If you’re looking at a smaller advance, say $500 or $800, could you come up with that money on your own to pay some bills? Remember that these 0 percent loans offer you money only a few weeks before your tax refund would be issued anyway.
ABOUT THE WRITER
Susan Tompor is the personal finance columnist for the Detroit Free Press.