Yes, it’s possible to get a loan against your tax refund. Most tax preparation services now offer tax advance refunds to their customers.
The reason why they’re so popular from both sides is the company isn’t loaning you any money. They typically partner with a bank that will supply you with the money. Your tax refund is then used to pay off the loan.
If you’re relying on a tax refund this year, don’t wait until the IRS is ready. Take a tax advance loan and get the money you need now. Your refund provider will handle the rest.
It’s true that tax advance refunds are loans. You’ll see a lot of advertisements talking about how there are no fees, and you don’t have to worry about interest. Like with any loan, though, you need to read the terms and conditions to make sure you don’t get any nasty surprises.
Let’s look at what you need to know about tax advance refunds.
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What is a Tax Advance Refund?
A tax advance refund is a type of short-term loan offered for free. It’s technically a loan taken out against your tax refund. The amount you can borrow depends on how much you expect to get in the form of a tax refund this year.
To be eligible for a tax advance refund, you need to have filed your taxes with that same company, in 99% of cases.
They also demand you file your taxes by their deadline. The standard deadline for most of these services is February 28th.
How Long Does It Take to Get a Tax Advance Refund Application Accepted?
Since your credit score doesn’t matter and the loan amount is secured against your tax refund, you can usually get your money within 24 hours of first applying. Naturally, this depends on the company you’re working with.
For people who are short on cash, this sounds appealing as the IRS said that you might have to wait up to three weeks to receive your refund. If you have more complex tax affairs, your refund can take even longer.
Which Tax Preparation Companies Offer Tax Advance Refunds?
The most well-known tax preparation companies include TurboTax, H&R Block, and Jackson Hewitt.
There are also some online-only tax preparation companies that provide tax advance refunds. These tend to offer Federal tax advance refunds up to a maximum of $3,250. This limit is gradually being increased, as it was $2,000 less back in 2017.
What are the Qualifications for Receiving a Tax Advance Refund?
The only qualification is you need to be eligible to receive a tax advance refund from the IRS.
There’s a reason why most loan providers demand you file your taxes with them first. They’ll know exactly what you’ll receive from the IRS this year, so they’ll base your maximum loan amount on this figure.
There are usually minimum loan amounts in place, which range from $500 to $1,000.
Do You Need to Pay for a Tax Advance Refund?
You shouldn’t pay any interest or fees on a tax advance refund.
There may be tax preparation fees, however, and you’ll have to pay them to file your taxes.
If you don’t need to file with the loan provider, you should take advantage of the IRS’ free tax filing software. Taxpayers who earn less than $66,000 per year can use it.
Any tax advance refund you receive will be issued through some form of prepaid debit card.
Will Taking Out a Tax Advance Refund Damage My Credit Score?
The answer to this question depends on the bank providing the loan. Your credit score will be damaged if the bank in question performs a hard inquiry into your credit report. But if they just review and make a soft inquiry of your credit report, you’ll have no problems.
Ask your tax advance refund provider how the bank they work with operates before applying.
What if the Loan Amount is Higher Than Your Total Tax Refund Amount?
This is a rare situation, but it usually happens when your tax preparer makes an error, or the IRS doesn’t accept a deduction or tax credit.
In this situation, you remain responsible for paying off the loan.
Luckily, the main tax preparers offer an accuracy guarantee, so if they make a mistake, they’ll provide benefits for it, including paying off any penalties and refiling your taxes.
Sometimes your refund amount is lower because the IRS withheld some of your refund.
Some of the reasons the IRS may withhold your refund include:
- Failure to pay child support.
- Tax debts owed to the Federal government or your state government.
- Unemployment debt.
- Unpaid student loan debt.
- Debts owed to certain government organizations, such as the Small Business Administration (SBA).
So, is a tax advance refund loan the best course of action for you?
If you need your tax refund urgently, it’s a great option. Just make sure you consult with your loan provider and ask them about their terms and conditions.
It’s also worth researching what other customers have to say about their services.