Instant Tax Refunds--but at what cost?

Tax time is approaching. Are you hoping for a refund to pay off those holiday bills and thinking of going to a tax preparation company who offers “Instant Refunds”. Why wait to get your tax refund when you can get it now?

While it sounds good to get your tax refund instantly, consumers need to be aware of the fees involved. Basically, the company is issuing you a loan for the amount of your anticipated refund and your refund goes to them to pay off this loan. Not only will you pay the fee for doing your taxes but if you sign up to receive your money instantly, you will generally pay $100 or more for this convenience.

For example on a typical $1500 tax refund, one tax preparation firm charges $60 to file the federal form, $15 to file the state form, $64 loan fee and $24 for getting your money now. This means you would be paying $75 for them to fill out the forms, which are fairly easy, and you could do on your own or use the free Volunteer Income Tax Assistance (VITA) services in your community. It also means that you pay $88 for the convenience of having your money now—that’s 6% of your refund. If you waited the usual 8-10 days that $88 would be in your pocket.

Also, many of the tax preparation companies are partnering with other businesses, such as car dealers, rent to own centers, even mortgage companies. Before agreeing to have your refund used to buy a car or other products, be sure you find out how much that privilege is going to cost you—it makes better financial sense to get your refund on your own and negotiate for whatever product you want without the issue of your refund muddying the waters.

For more information, see FDIC Tips and National Consumer Law Center’s Tips.

New Years Resolution--Check Your Credit Report!

Start the New Year off right—get a copy of your credit report. It’s free and easy. Your credit report contains information about how you have handled credit, such as loans or credit card accounts, as well any bankruptcies, tax liens or monetary judgments issued against you.