Comparing the Tax Refund Loan Programs of 2020

by
Adam Rust

Tax refund loans give filers access to a portion of their refund, usually after a short wait but well before the time when the IRS would otherwise distribute the refund. When the IRS officially issues the refund, the lender collects the outstanding loan amount from the refund. The filer does not pay back the lender; instead, the lender deducts the outstanding loan balance and any other fees from the IRS’ payment.

Generally, a person can delay paying tax prep fees with a tax refund loan.

Things to Understand about Tax Refund Loans

In a tax refund loan, approved filers receive a loan in an amount that relates to the size of their expected tax refund. As a rule, tax refund loans cannot exceed the amount of an expected refund. A borrower pays back the loan principal and the finance charge when the IRS distributes the refund. A filer only receives the remaining proceeds after the lender has already received its compensation. In some instances (for example, in the case of the Easy Advance) the lender may charge a fee to the ERO for every approved advance.

The banks behind the loans will initiate the loan only after the IRS signals its approval of the return. Without a loan, filers may have to wait much longer. The IRS distributes funds once a week in huge batch payments. With a direct deposit, refunds arrive sooner than if the filer requests payment by a paper check.

In most if not all instances, your preparer will only allow a filer to apply for a loan on the condition that the person hires the firm to do his or her taxes. All tax filers should ask themselves if preparation costs at a firm with loans are higher than it might be elsewhere, as, with those constraints, the preparer has the leverage to impose an upcharge.

While tax season runs until April 15th, most companies suspend their loan programs much earlier. For example, H&R Block says it will not make loans after February 29th.

Filers cannot receive a loan for more than the amount of their expected refund.

H&R Block Refund Advance Loan (Axos Bank)

Block’s Refund Advance loan is available without any charges or interest. Customers of the nation’s largest preparer can receive loans of $250, $500, $750, $1,250, or $3,500.

Axos sends the funds to an H&R Block Emerald Prepaid Mastercard. The Emerald Card does not charge a monthly maintenance fee, but there are some fees associated with using the card:

• $3 to withdraw cash from an ATM (plus a fee for the owner of the ATM). Cardholders pay $1.50 (plus host ATM fees) to check their balance. You can withdraw up to $3,000 at the ATM per day.

• You will pay $35 to withdraw funds inside a bank branch.

• The Emerald Card has a bill pay feature, but it costs $0.95 for each payment.

If you decide to load additional funds to an Emerald Prepaid Debit MasterCard, you will have to pay $4.95 at authorized reload retailers. You should close the account if you do not intend to use the card, as you will otherwise have to pay an inactivity fee after sixty days pass without any utilization of the card. For each subsequent month that the card remains inactive, Emerald will apply an additional $4.95 fee.

The Block Refund Advance is available inside Block offices (not online) from January 4th to February 29th.

Block pays to offer the Refund Advance to its filers. The company says it paid its bank partner $47.7 million in 2019.

Some Block customers turn down the refund advance and instead opt for a Refund Transfer. The RT allows a person to delay paying for tax preparation. For $39.95 ($34.95 online), the consumer receives the ability to deduct the $100 to $200 in prep fees from the ultimate proceeds of their refund. Many people choose to do this, including a fair share of online filers. In its 2019 Annual Report, Block reported $170 million in sales fees for Refund Transfers. At $39.95 each, that means that more than four million people chose to use a Refund Transfer.

Debit Cards to Receive Tax Refunds - and then use as your main bank account
Picture of card
Picture of card
No Fee Refund Advance by Jackson Hewitt (MetaBank)

The No Fee Refund Advance has no fees or interest charges.

Consumers without a regular bank account can receive the loan fund proceeds through a prepaid debit card. Those with an account can arrange to have the advance routed directly to their bank account through direct deposit.

The filer must use Jackson Hewitt’s tax preparation services to qualify for the No Fee Refund Advance.

Filers can receive loans of $200, $500, $750, $1,000, $1,250, or $3,200. Disbursements may occur in minutes but do not count on receiving funds right away. Jackson Hewitt warns filers that the cash could take as long as 24 hours to be disbursed. Funds may not settle right away, either, depending on how the money is routed.

Liberty Tax Easy Advance (Republic Bank & Trust)

The Easy Advance is a loan secured by a tax refund. Filers can receive a loan in specific increments: $500, $800, $1,300, $2,500, $3,000, $4,750, and $6,250. Proceeds from most loans are received within 24 hours.

Liberty is paying $50 to filers who complete their return before February 28th. That promise strikes me as curious, given that their Basic, Deluxe, and Premium services all cost $44.95.  

Loans, if approved, bear a finance charge:

• $500 loan - $14.79 finance charge

• $800 loan: $23,66

• $1,300 loan: $38.46

• $2,500 loan: $73.96

• $3,000 loan: $88.75

• $4,750 loan: $140.52

• $6,250 loan: $184.90

Independent preparers can offer the Easy Advance, too. At the top end of the spectrum, incremental loan amounts are slightly lower, as well, there is no $800 option.

On the disclosure page of its Tax Refund Solutions division, Republic Bank of Kentucky notes that EROs whose offices experience higher levels of losses may forfeit some of their incentives. Reading that, I’m intrigued by the idea of a lender paying incentives to a preparer as part of a loan program.

Intuit Turbo Tax Refund Advance (First Century Bank, NA)

Advantage: Intuit says that its Refund Advance loans have no interest and no fees.

The shortcoming, at least from the perspective of some filers, is that the loan sizes are smaller than at other companies. The maximum Refund Advance tops out at $2,000. However, Intuit says it can return funds electronically in as little as one hour after the IRS approves a filer’s return.

Caveats to receiving a Refund Advance:

• The IRS must indicate that you will receive no less than $500 back.

• You cannot live in Illinois, North Carolina, Rhode Island, Vermont, a US territory, or a prison. As a protection against fraud, Intuit/First Century Bank will approve advances for filers who list a P.O. box as their official address.

• You must be at least eighteen years old.

For those who prefer, including filers without a bank account, Intuit can place the proceeds from a Refund Advance on a Turbo Visa Debit Card from Green Dot Bank. However, doing so will delay the speed at which you can access the funds.  

If a filer pays nothing to receive the Refund Advance, it does not mean that First Century is originating these advances for free.

A few changes for 2020:

Companies are now comfortable with referring to their advance product as a “loan.” In years past, services insisted that refund advances were different from loans, but perhaps because of a different regulatory climate, they now concede the term.

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Adam Rust has worked to defend consumers against harmful financial practices since 2005. He has written extensively about overdraft fees, payday lending, credit insurance, student loans, prepaid debit cards, high-cost installment loans, and subprime mortgage lending. The New York Times interviewed him when it reported on the CFPB's rulemaking on prepaid debit cards; subsequently, his research paper framed the debate on consumer protections.

He serves on the Board of the US Faster Payments Council. He is Director of Research at Reinvestment Partners in Durham, North Carolina. He is the author of BankTalk. He is the author of "This is My Home: Challenges and Opportunities of Manufactured Housing" and has testified to Congress on how to redress some of the problems with manufactured housing. See more on his LinkedIn profile.