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.